The report outlines a range of factors contributing to this revised growth forecast, with optimism for the upcoming quarter but a clear acknowledgement of challenges that have slowed the economy. While October to November quarter (Q3) numbers are expected to surpass the relatively weaker performance of the April to September period, the broader picture indicates that the pace of growth is unlikely to reach the higher end of previous expectations.
The economic report highlights several key reasons for the slowdown in the first half of FY25. A slump in government capital expenditure (capex) and underwhelming private capex have significantly contributed to the muted economic activity.
Another factor noted in the report is the influence of the Reserve Bank of India’s (RBI) monetary policy. The prudent macroeconomic measures and tighter monetary policy may have dampened economic activity, particularly in consumption and investment. The slowdown in corporate hiring and lower compensations have also impacted urban consumption in the first half of the fiscal, further straining the economy.
Looking ahead to the next financial year, the Finance Ministry’s report remains cautiously optimistic about India’s domestic economic prospects. However, it emphasises the need for caution due to global uncertainties that could affect India’s growth trajectory. Key risks include fluctuations in global interest rates, particularly changes in US monetary policy, which have directly affected currencies worldwide, including the Indian rupee.
The report also notes that these global financial shifts create challenges for the Reserve Bank of India, as it faces increased uncertainty in setting future interest rate policies. The report highlights that this uncertainty will remain a critical factor in shaping India’s economic performance in the next couple of quarters, and policymakers will need to remain vigilant as they navigate these external pressures.
