Wednesday 22 / January / 2025
New Delhi: Amid evolving economic conditions, Deloitte India, in its latest Economic Outlook, has revised its annual GDP growth projection for 2024-25 to 6.5-6.8 per cent, with expectations for 6.7-7.3 per cent in the following year.
Multinational professional services firm Deloitte said the adjustment reflects the need for cautious optimism as the economy navigates a rising global trade and investment uncertainties.
Q2 2024-25 GDP growth stood at 5.4 percent year-over-year, falling short of market expectations.
In response, the RBI lowered its annual growth forecast to 6.6 percent, while the latest NSO survey estimated growth at 6.4 percent for the current fiscal year.
Rumki Majumdar, Economist at Deloitte India, argues "Election uncertainties in the first quarter followed by a modest activity in construction and manufacturing in the subsequent quarter due to weather-related disruptions led to weaker-than-expected gross fixed capital formation. The government's capex stood at just 37.3 percent of annual targets in the first half, a sharp decline from last year's 49 percent, and there is a lag in the momentum it needs to gain."
"Additionally, a tempered global growth outlook, potential shifts in trade regulations among industrial nations, and more stringent monetary policies than previously anticipated in India and the US may hinder the synchronised recovery in Western economies that we anticipated for this fiscal year."
India will have to adapt to the evolving global landscape and harness its domestic strengths to drive sustainable growth, Deloitte said.
One way to do this would be through economic decoupling from global uncertainties and harnessing India's untapped potential. Several indicators that reveal resilience in certain pockets are worth noting, it suggested.
For instance, rural consumption remains strong, bolstered by robust agricultural performance and rising spending power in rural areas. The services sector continues to thrive, with significant growth in finance, insurance, real estate, and business services.
This sector significantly contributes to urban income and services exports, which have been touching new highs lately. Despite global and domestic challenges, India is moving up the global value chains, as is highlighted by the rising share of high-value manufacturing exports, particularly in electronics and machinery and equipments.
India's capital markets present a compelling narrative of resilience. Between October and December 2024, Foreign Institutional Investors (FIIs) withdrew significant amounts in response to geopolitical uncertainties surrounding the U.S. elections, slower corporate earnings, and China's stimulus measures in September 2024.
These outflows were comparable to those witnessed during the COVID-19 pandemic. Despite this, the Sensex remained relatively stable (compared to previous episodes of FII outflows and volatility), bolstered by increasing participation from Domestic Institutional Investors (DIIs), which helped mitigate the impact of FII outflows.
Majumdar said, "We noticed that prior to 2020, the sensitivity of the Indian capital market movements to changes in FII was much higher. That has come down after 2020."
The Indian economy grew by 5.4 per cent in real terms in the July-September quarter of the current financial year 2024-25. The quarterly growth was quite less than RBI's forecast of 7 per cent. In the April-June quarter too, India's GDP grew at a slower pace than was estimated by its central bank.
For India, the GDP data for the second quarter of 2024-25 and headline consumer price inflation have posed the dilemma of a slowing growth-high inflation conundrum. Food prices in particular continue to remain a pain point for the policymakers in India, who wish to bring retail inflation to 4 per cent on a sustainable basis. The RBI has kept the repo rate elevated at 6.5 per cent to keep inflation contained.
