India's GDP growth projected at 6.5% for FY25: Ind-Ra

However, Ind-Ra has identified several risk factors that could impact growth. The demand in the economy is primarily driven by government capital expenditure, with consumption demand skewed towards goods preferred by the upper 50 per cent of income earners. This has resulted in a mere 1.0 per cent growth in the consumer durables segment of the Index of Industrial Production during the first nine months of FY24. Additionally, India's exports are expected to face challenges from the global economic slowdown and increasing trade disruptions and geopolitical tensions, with goods and services exports recording a slight contraction of 0.14 per cent during the first ten months of FY24.

The rise in wholesale price index (WPI) inflation, turning from deflation to inflation since November 2023, poses another challenge for gross value added (GVA) and corporate profitability in FY25. Ind-Ra anticipates private final consumption expenditure (PFCE), which constitutes about 60 per cent of the GDP from the demand side, to grow by 6.1 per cent year-on-year in FY25, up from 4.4 per cent in FY24. However, the agency warns that sustainable consumption demand growth requires increased demand for goods consumed by lower-income households, as per Ind-Ra.

Regarding investment demand, government capital expenditure is expected to continue its strong growth, with gross fixed capital formation (GFCF) projected to increase by 8.1 per cent year-on-year in FY25. Despite the overall sluggishness in private sector greenfield projects, there are signs of a revival in private corporate capital expenditure.

Government consumption expenditure (GFCE) is forecast to grow by 4.2 per cent year-on-year in FY25, reflecting a continued focus on capital expenditure over revenue expenditure. The trend towards fiscal consolidation is evident in the reduction of the centre's revenue expenditure to GDP ratio over recent years.

Ind-Ra also highlights the reorientation of global trade along regional and political lines as a new risk to India's exports, despite a slight recovery in global supply chains post-pandemic. The agency expects goods and services exports to grow by 5.8 per cent year-on-year in FY25, with imports projected to increase by 8.8 per cent.

Inflation is expected to moderate, with average retail and wholesale inflation forecast at 4.8 per cent and 2.2 per cent, respectively, for FY25. The Reserve Bank of India (RBI) is likely to maintain a cautious stance due to concerns over retail inflation exceeding the target of 4 per cent.

The fiscal deficit for FY25 is deemed achievable at 5.1 per cent of GDP, with the government's tax revenue collections expected to continue their strong performance. Ind-Ra anticipates a comfortable current account deficit, supported by controlled import bills and robust remittances and software exports. Furthermore, an improvement in capital account flows is expected to bolster India's forex reserves, aiding in stabilising the rupee.

Fibre2Fashion News Desk (DP)