India’s Economic Growth Forecast for FY25: 6.5%

India’s economic growth is expected to reach 6.5% in FY25 despite facing a subdued first half, as outlined in the Finance Ministry’s Monthly Economic Review. The report attributes the slowdown primarily to the Reserve Bank of India’s (RBI) restrictive monetary policy stance and weaker demand. While global uncertainties weigh on the economy, domestic factors like agricultural activity and industrial gains are expected to drive growth in the second half of the fiscal year.

Economic Growth Slowdown in H1 FY25

GDP Growth Hits Seven-Quarter Low: India’s GDP growth slowed to 5.4% in the July-September quarter, a sharp drop from 6.7% in the previous quarter. This decline is mainly attributed to weaker expansion in manufacturing and consumption. Despite these challenges, the Finance Ministry expects a rebound, projecting a 6.5% growth for FY25, aligning with the RBI’s revised forecast of 6.6%.

Impact of RBI’s Monetary Policy: The RBI’s decision to maintain key interest rates for 11 consecutive meetings, citing inflation control, is seen as a factor contributing to the slowdown. However, the reduction in the cash reserve ratio (CRR) in the latest policy meeting is expected to aid credit growth.

Outlook for the Second Half (H2) of FY25

Resilient Rural Demand: Rural demand remains strong, as evidenced by the growth in two- and three-wheeler sales, alongside robust tractor sales. The Finance Ministry highlights that the upcoming rabi crop season is supported by favorable factors like an increase in Minimum Support Price (MSP), high reservoir levels, and sufficient fertilizer availability, which should bolster agricultural activity.

Urban Demand Recovery: Urban demand is showing signs of recovery, with passenger vehicle sales growing by 13.4% year-on-year and air passenger traffic also seeing a significant uptick. This signals a potential recovery in consumption in the second half of FY25.

Inflation and Global Risks

Inflation Pressures Ease: Inflationary pressures have softened, driven by lower food and core inflation. The Finance Ministry projects CPI inflation at 4.8% for FY25, with a slight dip expected in Q4. The decline in international crude oil prices and the promising rabi harvest should help mitigate food price inflation.

Global Uncertainties: The global economic landscape remains uncertain, with risks from potential global trade tensions, particularly with the US under President-elect Donald Trump’s policies. The stronger US dollar and shifting global trade dynamics could impact India’s export growth and currency stability.

Summary of the news

Why in News	Details
India’s Economic Growth Forecast for FY25	Indian economy projected to grow at 6.5% in FY25, with 5.4% growth in the July-September quarter. Economic slowdown attributed to the RBI’s restrictive monetary policy and global uncertainties.
RBI’s Monetary Policy	The RBI has kept key interest rates unchanged for 11 consecutive policy meetings, aiming to control inflation, contributing to the slowdown.
Rural and Urban Demand	Rural demand remains resilient, supported by growth in two- and three-wheeler and tractor sales. Urban demand shows recovery with growth in passenger vehicle sales and air traffic.
Key Economic Sectors	Agricultural growth supported by increased Minimum Support Prices (MSP) and favorable monsoon conditions. Industrial activity expected to pick up due to government capital expenditure and demand in sectors like cement, iron, steel, mining, and electricity.
Inflation and Inflationary Pressures	Inflation softened due to lower food and core inflation. CPI inflation projected at 4.8% for FY25, with a quarterly forecast of 5.7% (Q3) and 4.5% (Q4).
GDP Growth in H2FY25	Growth in the second half of FY25 (October-March) is expected to improve, driven by better rural and urban demand, and industrial recovery.
Global Risks	India faces global uncertainties such as global trade wars, a stronger US dollar, and risks from high global oil and edible oil prices. These may impact emerging markets and India’s economic stability.
Finance Ministry’s Economic Report	The Ministry’s monthly report for November stated that despite a weaker first half, India’s economy will likely rebound in the second half due to domestic economic fundamentals, although global risks remain.
Key Economic Policy Measures	The RBI’s reduction of Cash Reserve Ratio (CRR) from 4.5% to 4% is expected to boost credit growth. Government’s capital expenditure is expected to support key sectors.