Driven by increase in agricultural and industrial activity, the Centre forecasts the economy to grow at 6.5% in FY25 following a slow first half of the current fiscal, according on the Monthly Economic Review published on Wednesday by Finance Ministry. Among the causes of the first half of FY25’s slowdown in the review the ministry has mentioned the monetary policy posture of the Reserve Bank of India (RBI).
From 6.7 per percent in the previous quarter, the GDP growth rate dropped to a seven-quarter low of 5.4 percent in the July–September quarter. Citing inflation, the RBI maintained its main rates same for 11 consecutive monetary policy sessions despite industry pressure.
“At the same time, it is not entirely ruled out that structural elements would have also contributed to the slowing down in H1. The ministry study said that the demand slowdown might have resulted from macroprudential actions by the central bank along with monetary policy posture.
The study also cites the good effect of the RBI reducing the cash reserve requirement (CRR) from 4.5 per percent to 4 per percent in its recent monetary policy meeting.
“That should help boost credit growth, which has slowed a little too much and quickly in FY25,” the paper added.
The paper also links reduced private sector hiring to the slowing down of urban consumption growth.
Demand for picking in H2
According to the survey, rural demand is still strong and urban demand is growing up in the first two months of the quarter, therefore indicating a promising future for October to December.
“An rise in Minimum Support Price (MSP) for rabi crops, high reservoir level and enough fertiliser supply bodes well for rabi planting. The research notes, “industral activity is likely to gain traction”.
The ministry adds that the predicted rise in government capital investment and the end of the monsoon season will help the cement, iron, steel, mining, and electrical sectors.
With PMI services in an expansionary zone in October and November 2024, the services sector is still performing very strongly.
From the demand side, the ministry claimed that the rural demand is still strong shown by 23.2% and 9.8% increase in two and three-wheeler sales respectively as well as domestic tractor sales.
“Urban demand is picking up; passenger vehicle sales registering YoY growth of 13.4% in October-November 2024 – and domestic air passenger traffic witnessing robust growth,” the paper notes.
