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Reading: EY report: India aims for 7%+ GDP growth in FY25 with focus on strong investment and inflation control.
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Gulf Press > Business > EY report: India aims for 7%+ GDP growth in FY25 with focus on strong investment and inflation control.
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EY report: India aims for 7%+ GDP growth in FY25 with focus on strong investment and inflation control.

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Last updated: 2024/11/03 at 4:22 AM
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New Delhi is looking at optimistic projections for GDP growth in the upcoming fiscal year, with Ernst & Young (EY) suggesting that India could reach over 7 per cent growth in FY25. However, achieving this target will depend on strong government investment and effective inflation control. Recent reports indicate a mixed outlook, with the Reserve Bank of India (RBI) maintaining a cautious stance on monetary policy due to rising inflation. In September 2024, Consumer Price Index (CPI) inflation reached 5.5 per cent, slightly above the RBI’s target of 4.1 per cent for the second quarter of FY24. Projections for the third quarter suggest CPI inflation could rise to 4.8 per cent, potentially delaying any interest rate reductions by the RBI.

Despite global trends towards rate cuts, the RBI decided to retain the repo rate at 6.5 per cent during its October monetary policy review. The central bank remains optimistic about India’s real GDP growth for FY25, forecasting a rate of 7.2 per cent driven by strong private consumption and investment growth. However, there is a significant downside risk due to a 19.5 per cent contraction in government investment spending, which is crucial for sustaining economic momentum. The challenge of meeting the government’s budgeted growth targets is further highlighted by the negative growth of corporate income tax revenues and a decline in capital expenditure.

Recent economic data indicates a moderation in growth momentum, with the Manufacturing Purchasing Managers’ Index (PMI) falling to 56.5 in September and services PMI dipping below 60 for the first time since January 2024. Additionally, the Index of Industrial Production (IIP) contracted for the first time since October 2022, reflecting broader economic challenges. The International Monetary Fund (IMF) has projected a moderation of India’s GDP growth from 8.2 per cent in FY24 to 7 per cent in FY25, and further to 6.5 per cent in FY26 due to the exhaustion of pent-up demand from the pandemic.

To maintain the growth momentum, India will need to accelerate government investment to avoid crowding out private sector initiatives. It is essential for the government to focus on controlling inflation and stimulating private sector growth to achieve the targeted GDP growth of over 7 per cent in FY25. By addressing the challenges in government investment spending and working towards a more stable economic environment, India can work towards a sustainable and robust growth trajectory in the years to come.

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News Room November 3, 2024
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