Analysing multiple positive as well as worrying factors, a Finance Ministry report on Thursday stated that a 6.5-7 per cent growth is “appropriate”. This is in line with the Economic Survey 2023-24 projections.
The Monthly Economic Review (MER), prepared by the Economic Affairs Department, states that the economic momentum remains intact. There are number of positives such as reservoirs having been replenished despite a somewhat erratic monsoon. Purchasing Managers’ Indices indicate that the manufacturing and services sector continue to expand. Tax collections have improved, and bank credit showing healthy signs. Inflation has moderated. Stock markets are at record levels. Foreign Direct Investment ((FD) has been good.
Fading Confidence
However, taking cues from RBI’s consumer confidence survey, it noted that consumer confidence in the current economic situation, employment, price level, and income has declined, Households’ optimism about economic conditions for the year ahead has declined from the previous survey round. Further, reduced optimism about the general economic situation, employment and prices has led to a moderation in the future expectations index of the Consumer Confidence Survey, July 15, 2024.
The industrial outlook survey of the manufacturing sector, also conducted by the central bank, revealed a decline in both the current assessment and the expectations indices of business sentiment in August. Production, order books, employment and export sentiments moderated. “Both the consumer and the industrial outlook surveys need to be monitored for future trends. As of now, the projection of real GDP growth of 6.5-7.0 per cent for FY25, as made in the Economic Survey for 2023-24, seems appropriate,” it said.
Price Dynamics
Highlighting that headline retail inflation, based on the consumer price index (CPI), dropped to 3.5 per cent in July, the report did not anticipate any shock. “With moderate core inflation and positive progress in the monsoon, the headline inflation outlook is positive,” it said. It is noteworthy that food inflation especially vegetable inflation, showed a strong decline. Cereal inflation also came down. Though core inflation (headline inflation minus food and fuel) moderated to 3.3 per cent in July from 3.1 per cent in June, not much impact on overall inflation outlook is expected,” it said.
Assuming a normal monsoon, CPI inflation for FY25 is projected at 4.5 per cent by the RBI, with Q2 inflation estimated at 4.4 per cent. In its August 2024 meeting, the Monetary Policy Committee of the Reserve Bank of India decided to keep the policy repo rate unchanged at 6.5 per cent, reiterating the need to maintain the disinflationary stance of withdrawal of accommodation, initiated in April 2022, to ensure that inflation progressively aligns with the target while supporting growth.