Economy set to achieve 6.5-7% GDP growth in FY25: Finance Ministry

India is set to achieve 6.5-7 per cent GDP growth in the current financial year as indicated by the movements in high-frequency indicators till August, a finance ministry report said on Thursday.

The recent developments analysed indicate strong foundations of macroeconomic stability in India with steady growth, investment, employment and inflation trends, a strong and stable financial sector and a resilient external account, including a comfortable foreign exchange reserve position.

"A challenge on the macroeconomic front is of navigating the continuing uncertainty in global economic prospects. We will likely encounter a cycle of policy rate cuts globally amid fears of a recession in advanced economies and continuing geopolitical conflicts," the Monthly Economic Review for August said.

On balance, the report said, the GDP growth of 6.7 per cent in Q1 FY25 and the movements in high-frequency indicators till August fit well with the real GDP growth projection of 6.5–7 per cent for FY25, provided by the Economic Survey 2023-24.

For the remaining part of the financial year, it said, a reasonable expectation is that public expenditure will pick up, providing added growth and investment impetus.

In the farm sector, higher kharif acreage is already visible. Adequately replenished reservoir levels will potentially give a fillip to the upcoming Rabi crops as well.

The skewed spatial distribution of rain may have an impact on farm output in a few regions. However, in the absence of any serious adverse climate shocks, rural incomes and demand should get stronger, and food inflation will be milder, it said.

There are also incipient signs of strains in certain sectors. For instance, the automobile dealers' body FADA has pointed to moderating sales of passenger vehicles and a build-up of inventory, it added.

Data from Nielsen IQ indicated that the growth of fast-moving consumer goods sales in urban areas slowed in Q1 FY25.

While these may turn out to be transient with the onset of the festival season, they warrant monitoring. Further, capital spending by Indian states has declined in the current financial year.

Stock markets around the world are booming, reinforced by recent policy announcements in a few countries, it said.

"Consequently, the risk of an eventual correction has risen. If the risk materialises, the spillover effect may be felt globally as well," it said.

Amidst these concerns, it said, low oil prices are a bright spot for the economy.