Economy ‘satisfactory’ in H1 of fiscal; choppy waters ahead: Finmin report

The Reserve Bank of India (RBI) projected a more optimistic growth figure, forecasting real gross domestic product (GDP) growth at 7.2% for 2024-25

India’s economy performed satisfactorily in the first half of the current financial year, according to the finance ministry’s monthly economic report released Monday. However, the ministry warned of potential disruptions from “escalating” geopolitical conflicts, “deepening” geoeconomic fragmentation and “elevated” valuations in financial markets of some advanced economies.

Nirmala Sitharaman

Whilst expressing confidence in rural demand compared to urban consumption in the first half of FY25, the report maintained that the Indian economy would grow between 6.5% and 7% in the current fiscal year. “Risks stem from global factors such as geopolitical conflicts, rising geo-economic fragmentation, uncertainties about the trade policies of major economies and consequent financial market reactions,” the report stated.

The Reserve Bank of India (RBI) projected a more optimistic growth figure, forecasting real gross domestic product (GDP) growth at 7.2% for 2024-25.

However, securities firm Nomura challenged this outlook in a report titled “India: Urban demand is likely to stay soft” published on October 28. “We believe India’s economy has entered a cyclical growth slowdown,” Nomura stated. “Coincident and leading growth indicators point to a further moderation in GDP growth and the RBI’s forecast of 7.2% for FY25 is overly optimistic, in our view.”

“We see rising downside risks to our own GDP growth projections of 6.7% in FY25 and 6.8% in FY26,” it said and cited “lower real salary increases, fading pent-up demand, high interest rates and tight credit conditions” as key reasons for waning urban demand.

The finance ministry cited several factors affecting urban demand, including “softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases.” Urban fast-moving consumer goods (FMCG) sales volume growth declined from 10.1% in Q1 of FY24 to 2.8% in Q1 of FY25.

On inflation, the report noted a September uptick primarily driven by erratic monsoon effects on vegetable supplies. However, a finance ministry official, speaking on condition of anonymity, said, “While many countries are struggling with inflationary pressures, India has successfully kept inflation within manageable limits.”