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The International Monetary Fund (IMF) has recently released an updated World Economic Outlook, maintaining its forecast for India's GDP growth at 6.5% for both fiscal years 2025 and 2026. This projection, however, comes amidst a revelation that India's economic expansion has decelerated more significantly than initially predicted. The IMF specifically points to a sharper-than-expected slowdown in industrial activity as the primary contributing factor. This revised assessment contrasts with the robust growth witnessed in previous quarters, highlighting the complexities and inherent volatility within the Indian economy. The September quarter of 2024 saw India's GDP growth dip to 5.4%, marking its slowest pace in nearly two years. Similarly, the Gross Value Added (GVA), a key indicator of economic productivity, registered a decline to 5.6% in the same period, compared to 7.7% in the corresponding quarter of the previous year. This deceleration underscores the need for a comprehensive analysis of the underlying factors driving this slowdown and the potential policy interventions required to stimulate sustained growth.
While the IMF's projection remains unchanged at 6.5%, several key economic indicators paint a more nuanced picture. Private Final Consumption Expenditure (PFCE), a significant proxy for private consumption, experienced a notable slowdown from 7.4% in the first quarter to 6% in the September quarter. This suggests a potential dampening of consumer confidence and spending, factors which could significantly impact overall economic activity. The government, however, remains optimistic, anticipating a resurgence in growth during the latter half of 2024-25, driven primarily by projected increases in rural demand and government spending. The government's own advance estimate of 6.4% GDP growth for FY25 aligns with this expectation, although this figure represents the slowest growth in four years, excluding the pandemic-induced contraction of 5.8% in FY21. This cautious optimism contrasts with the Reserve Bank of India's (RBI) revised forecast of 6.6%, a downward revision from their initial projection of 7.2%, reflecting a shared concern over the recent economic slowdown.
The IMF's global outlook presents a contrasting picture. The world economy is projected to grow at 3.3% in 2025, a marginal increase from the previous estimate of 3.2%, suggesting a relatively stable, albeit lackluster, global economic environment. However, the IMF report underscores significant divergence across economies, emphasizing a precarious global growth profile. This uneven distribution of growth is attributed to several factors, including fluctuating oil prices influenced by weak Chinese demand and increased supply from non-OPEC+ countries, along with increased gas prices due to colder-than-expected weather and ongoing geopolitical instability in the Middle East. Furthermore, the report forecasts a 2.5% increase in non-fuel commodity prices in 2025, primarily due to upward revisions in food and beverage prices resulting from adverse weather conditions affecting major producers. This highlights the significant impact of external factors on global economic performance and underscores the interconnectedness of various economic systems.
The IMF's expectation of declining monetary policy rates by major central banks reflects a cautious approach to managing inflation and promoting growth in a globally uncertain economic climate. The RBI’s decision to maintain the benchmark repo rate at 6.5% underscores this cautious strategy. In contrast, the UN's World Economic Situation and Prospects (WESP) 2025 report highlights persistent challenges such as weak investment, sluggish productivity, and high debt levels, all of which continue to hinder global economic performance. The report notes that global economic growth has stagnated below the pre-pandemic average, indicating the ongoing struggle to recover fully from the economic shocks of recent years. These external factors, in combination with domestic economic challenges, contribute to the complexity of the situation and the need for well-considered policy responses.
Experts offer contrasting perspectives. Bhanumurthy N.R., director of the Madras School of Economics, suggests that the Q2 growth figures might be an aberration rather than a trend, anticipating a potential upward revision of the FY25 growth forecast from 6.4% based on projected improvements in Q3 and Q4 growth. He attributes this potential upward revision to factors such as increased capital expenditure by both state and central governments, improved trade figures, and the impact of a depreciated exchange rate, which is expected to discourage imports and potentially stimulate exports. The weakening Rupee against the US dollar is also expected to play a significant role in boosting exports, thereby contributing to a more positive economic outlook for the coming quarters. Additionally, he observes signs of a revival in private investment, indicating a potential for broader economic recovery in the near future. The convergence of increased government spending, improved trade balances, and a revival in private investment offers a basis for optimism, suggesting that India's economic trajectory might prove more resilient than some current predictions indicate.
Source: IMF keeps India’s GDP growth forecast unchanged at 6.5% for FY25 and FY26