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India’s economic outlook for FY25 remains “bright”, the finance ministry said on Friday, noting that the economy will close the current fiscal with strong growth accompanied by stable inflation, robust external account and progressive employment scenario.
“On the whole, India looks positively towards the dawn of FY25,” the ministry said in its monthly economic report for February. It asserted that the pick-up in investment has been “broad-based”, driving growth while consumption remains “steady”.
The government’s capital spending push has helped crowd in private investments, the ministry said. It, however, flagged that an increase in domestic household savings will be necessary to finance private sector capital formation.
The report advised against lowering guard on the current account deficit (CAD), saying it “will bear watching” next fiscal. Also, indications of hardening crude oil prices and global supply chain bottlenecks to trade pose challenges.
In FY24, though, the narrowing merchandise trade deficit and rising net services receipts are expected to result in an improvement in the CAD, it added.
The report argued that improvement in global investor confidence in India has started reflecting in foreign portfolio investment flows.
Bloomberg’s announcement to include India in its bond index from January 2025 “should bolster inflows, buoyed by the fiscal prudence that the government has demonstrated over the years”, the ministry said. The Centre aims to reduce its fiscal deficit to 5.1% of GDP in FY25 from 5.8% this fiscal.
The report acknowledged that foreign direct investment inflows are still awaiting momentum but highlighted that foreign portfolio investors turned net buyers in February. New project announcements remained stable, keeping India among the top five destinations for global green-field projects, it added. “While robust investment activity is clearly underway, strengthening private consumption demand is evident from indicators like burgeoning air passenger traffic and sale of passenger vehicles, digital payments, improved consumer confidence and expectations of a normal monsoon,” according to the ministry.Robust aggregate demand has spurred manufacturing and construction activities and accompanying professional, financial and real estate services, the report suggested. Heightened demand for residential properties in tier-2 and tier-3 cities augers well for further bolstering the construction activity, it added.
In its second advance estimate last month, the National Statistics Office said the economy will grow at a faster-than-expected rate of 7.6% in FY24.
Employment and Inflation Outlook
The robust FY24 growth rate would mark a third straight year of 7%-plus expansion after the pandemic-induced slump in FY21. Gross fixed capital formation is estimated to comprise 34.1% of India’s gross domestic product in FY24, the highest in over a decade.
The finance ministry said a revival of non-farm employment improves capacity to absorb labour leaving agriculture. “The ascent of the manufacturing sector employment is expected to be marked by upscaling of enterprises and sunrise sectors emerging as catalysts for generating quality employment,” it said.
The latest findings of the Periodic Labour Force Survey suggest a drop in the unemployment rate coupled with an increase in labour force participation in 2023.
The inflation outlook remains positive, with core inflation trending downwards and indicating a “broad-based moderation in price pressures”, the report said. Pick-up in summer sowing is likely to help reduce food prices.
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