Credit: Special Arrangement
New Delhi: India's economic growth likely accelerated in the January-March period after sluggish performance in the previous two quarters, led by improved export growth, pick-up in government capital expenditure and impetus to economic activity associated with Kumbh Mela, the Finance Ministry said on Wednesday.
High-frequency indicators of economic activity suggest improved growth momentum in Q4 of FY25, with e-way bills showing double-digit growth and PMI indices remaining in the expansionary zone, the ministry said in its monthly economic review report.
India’s gross domestic product (GDP) growth slipped to a seven-quarter low of 5.6 per cent in July-September 2024 period. It improved to 6.2% in the third quarter of the current financial year, as per the latest National Statistics Office (NSO) data.
The improvement in growth numbers in the October-December quarter was driven by a strong agricultural and service sector performance on the supply side and a steady increase in consumption and core merchandise and services exports on the demand side.
As per the Finance Ministry report, the Indian economy is estimated to achieve a growth of 6.5% in the financial year ending March 2025 despite considerable external headwinds.
However, trade policy uncertainties, volatility in international commodity prices and financial market uncertainties pose considerable risks to the economic growth outlook in the financial year beginning April 2025, the ministry noted.
The report underlined the importance of private sector investments saying it would “overpower the risks to the growth outlook considerably”.
“It is essential that the industry recognises the mutual endogeneity of its investment spending and consumption demand,” it said.
“The proposed changes in the personal income tax structure are expected to improve the disposable incomes of the middle class and their consumption. The 25-basis point policy rate cut in February, as part of a more accommodative monetary policy and enhanced liquidity provisions, can also bolster the growth momentum,” it added.
On price rise, the Finance Ministry noted that the expectation of record production of food grains in 2024-25 will help moderate food inflation in the coming months. Inflationary pressures have eased considerably in the recent months. The headline retail inflation declined to a seven-month low in February 2025, helped by easing food inflation.
The report also touched upon the reasons for the recent fluctuations in the stock markets. “In recent months, India’s equity markets have declined due to a variety of factors. Chief among them is its stellar performance of the previous four years, leading to profit-taking and a trimming of allocation by foreign portfolio investors, looking for value elsewhere,” it said.
The impact of the selloffs in the equity segment was partially offset by robust external inflows into debt markets which were, to an extent, catalysed by India’s inclusion into the Bloomberg Emerging Market Local Currency index. Further, Indian retail investors have remained unfazed by the decline and continued to repose faith in the market’s long-term potential, it added.