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India's GDP growth forecast for FY25 increases to 6.8 %

Recent trends indicating a softening in headline inflation have led to forecast a decline to 4.5 percent in FY25 from 5.4 percent in FY24.

Indian rupee / Image- Pixabay

In a testament to India's resilience amidst global economic fluctuations,its GDP growth forecast for the fiscal year 2024-25 (FY25) was revised to 6.8 percent, up from its previous estimate of 6.5 percent. 

Global investment banking firm, Morgan Stanley revised the GDP growth forecast due to an optimistic outlook arising from a combination of factors, including sustained traction in industrial and capital expenditure activities. 

The firm’s report stated that the GDP growth in the current financial year (FY24) will be at 7.9 percent. In FY25, it anticipates a broad-based growth momentum, with rural-urban consumption disparities narrowing and private-public capital expenditure converging.

Moreover, the firm projects a favorable inflation trajectory for India. Recent trends indicating a softening in headline inflation have led to forecast a decline to 4.5 percent in FY25 from 5.4 percent in FY24. Core inflation is expected to remain muted at 4.1 percent, aided by supply chain normalization and easing commodity price pressures.

However, amidst these positive projections, Morgan Stanley remains vigilant of potential risks emanating from both global factors and domestic uncertainties. Slower-than-expected global growth, elevated commodity prices, and tighter global financial conditions pose challenges to India's growth and macroeconomic stability. Domestically, factors such as upcoming central elections and changes in the policy mix necessitate close monitoring.

In a similar vein, S&P Global, on Tuesday, raised India’s FY25 growth forecast to 6.8 percent, citing strong domestic demand and an uptick in exports. Despite this positive outlook, both Morgan Stanley and S&P Global underscore the importance of vigilance in the face of potential risks, emphasizing the need for proactive measures to sustain India's economic momentum.

Looking ahead, Morgan Stanley anticipates headline inflation to average 4.5 percent in FY25, with core inflation remaining subdued at 4.1 percent. The firm foresees continued supply chain normalization and easing commodity price pressures contributing to the disinflation trend, further bolstering India's economic resilience in the coming fiscal year.
 

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