The fiscal year 2025 is expected to see a surge in average crude oil prices compared to the previous year, according to a report by Crisil. Experts predict that the prices may reach $83-88 per barrel, putting a strain on the central government’s fiscal burden as India imports more than 80% of its crude oil for domestic needs. In June, Brent crude oil prices remained stable at USD 82.6 per barrel on average, showing a slight increase month-on-month and year-on-year.
The budget for fiscal year 2025 aims to reduce the central government’s fiscal deficit to 5.1% of GDP from 5.6% in the previous year. In the first two months of the fiscal year, the center’s fiscal deficit was at 3% of the budget target, a significant improvement from the same period in the previous fiscal year. The Gross market borrowing is projected to decline by 8.4% year-on-year to Rs 14.1 lakh crore, with the government planning to borrow 53.1% of the budgeted amount in the first half of the fiscal year.
The current account deficit (CAD) is expected to average 1.0% of GDP in fiscal 2025, up from 0.7% in the previous year. This increase is attributed to healthy momentum in goods exports and an anticipated moderation in imports, making the CAD manageable for the fiscal year. India’s real GDP is projected to grow at 6.8% in fiscal year 2024-25, with high interest rates and a reduction in fiscal deficit hampering the growth rate. The rural economy is expected to have a positive outlook due to forecasts of above normal monsoon.
Consumer Price Inflation is also expected to soften to 4.5% in fiscal year 2025 from 5.4% in the previous year. The forecast of an above-normal monsoon is expected to alleviate food inflation, but non-food inflation could increase. The report predicted two policy rate cuts by the RBI starting in October 2024, with the goal of reducing inflation to 4% for easing monetary policy. The RBI will monitor the monsoon’s momentum along with other extreme weather events and geopolitical shocks before taking further action on rate cuts.
During the last MPC meeting in June, the RBI kept policy rates unchanged while maintaining a stance of withdrawal of accommodation. The next MPC meeting is scheduled for August, where further decisions on monetary policy will be made based on the economic conditions at that time. Overall, the fiscal year 2025 is expected to see challenges in managing the fiscal deficit and inflation, but the economy is projected to grow at a moderate pace with the support of policy measures and external factors such as the monsoon.
