"India Soars: Navigating Global Waves in the Economic Sky of FY25"
India's economy is poised for robust growth in FY25, targeting a 7% expansion. The Finance Ministry's January economic review highlights a positive trajectory but acknowledges the presence of global headwinds that require careful navigation.
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Global Risks:
• Trade Disruptions: Global trade faces risks due to disruptions caused by the Houthi militant group's attacks on crucial Red Sea trade routes, leading to supply chain disruptions.
• Inflation Concerns: Persistent inflation in developed countries may result in tight monetary conditions globally, impacting India's economic landscape.
Resilient Growth Forecasts by RBI:
During the latest Reserve Bank of India (RBI) monetary policy meeting: Real GDP growth for FY25 is projected at 7%, up from the previous estimate of 6.6%.RBI’s quarterly growth projections stand at 7.2% (Q1), 6.8% (Q2), 7% (Q3), and 6.9% (Q4).
Driving Forces for FY25 Growth:
• Agricultural Strength: Healthy winter crop harvesting (rabi) and sustained manufacturing profitability contribute to economic buoyancy.
• Demand-Side Momentum: Anticipated improvements in household consumption and bright prospects for capital formation, driven by an upturn in private capex, positive business sentiments, and robust bank and corporate balance sheets.
• Government Initiatives: Continued government emphasis on capital expenditure further fuels economic activity.
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Global Economic Dynamics:
• Repo Rate Impact: High repo rates in advanced economies, driven by persistent inflation, affect Indian exports by elevating debt-servicing costs.
• Geopolitical Tensions: Conflicts in Ukraine and West Asia threaten to elevate global oil prices, exerting inflationary pressures worldwide.
Inflation Management: India has successfully implemented policy measures and monetary tightening transmission to rein in inflation. The stable movement in core inflation, coupled with moderating food prices, paints a favourable outlook for maintaining a reasonably low headline inflation rate. Retail inflation stood at 5.1% in January, within the central bank's 2-6% tolerance range for the fifth consecutive month.
Crude Oil Prices and Export Competitiveness: The Finance Ministry expects the average crude oil price for the Indian basket in FY24 to be $82.2/bbl., lower than the previous fiscal year's average.Lower input prices and controlled inflation positively influence output growth, enhancing India's export prospects. Given global uncertainties, there is a pressing need to boost the competitiveness and attractiveness of India's exports.
In conclusion, India's economic trajectory for FY25 is optimistic, but vigilance and proactive measures are crucial to navigate the complex global economic landscape and sustain the country's growth momentum.
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