FY25 GDP growth projections remain optimistic: Think tank CMIE
The Reserve Bank of Indias (RBI) Monetary Policy Committee retained its GDP growth forecast for 2024-25 at 7.2 per cent in August 2024. Its optimism is based on improved agricultural activity lifting rural consumption and sustained buoyancy in services supported by urban demand. Revival of private investment, governments thrust on capex and healthy balance sheets of banks and corporates would drive fixed investment activity, the outlook report reads, adding that additionally, better world trade prospects are expected to support external demand.
Think tank CMIE has published GDP outlook for India. It said that forecasts for India’s economic growth in 2024-2025 continues to remain bullish. It says that forecasts made by 25 agencies range from India's GDP growth in the range of 6.2 to 8 per cent.
The median forecast is 7 per cent and the average GDP growth projection for the current fiscal year is about 7.2 per cent, says CMIE.
These sanguine growth expectations largely ride on likely increase in consumption spending through improved rural demand, stable domestic inflation regime and a stable macroeconomic environment following the Budget 2024, the think tank says in its report.
CMIE highlights that while some forecasters fear low private capital formation, others argue that the budget will help private capex upcycle.
The Reserve Bank of India’s (RBI) Monetary Policy Committee retained its GDP growth forecast for 2024-25 at 7.2 per cent in August 2024.
Its optimism is based on improved agricultural activity lifting rural consumption and sustained buoyancy in services supported by urban demand. Revival of private investment, government’s thrust on capex and healthy balance sheets of banks and corporates would drive fixed investment activity, the outlook report reads, adding that additionally, better world trade prospects are expected to support external demand.
However, the committee reduced its Q1FY25 prospects from 7.3 per cent to 7.1 per cent, owing to lower-than-anticipated corporate profitability, general government expenditure and core industries output.
The median GDP growth projection of RBI’s Survey of Professional Forecasters conducted in July 2024, increased by 20 basis points to 7 per cent for 2024-25.
In the survey, where 44 professional forecasters participated, the forecasts were in the range of 6.5-8.10 per cent, the CMIE report says.
"The Economic Survey of 2023-24 projects India’s real GDP to grow at a conservative 6.5-7 per cent for FY25. This rides on domestic drivers like improved rural demand following satisfactory spread of southwest monsoon and normal rainfall forecast. The survey expects a rise in exports (both merchandise and service) and recognises swift recovery from the pandemic with a 20 per cent higher real GDP in FY24 than the pre-covid level," the outlook report says.
"It remains conservative on account of fear of shrinking private capital formation, delayed monetary easing and global uncertainties."
Growth projections by multilateral agencies range between 6.5-7 per cent.
International Monetary Fund (IMF) revised its growth projections up to 7 per cent from 6.8 per cent, attributed to strong consumption demand from rural India.
Asian Development Bank (ADB) retained its projection at 7 per cent mark underpinned by robust manufacturing and construction demand, continued public investments and a rebound of agriculture.
This view is shared by World Bank whose June forecast projected growth at 6.6 per cent.
Among credit rating agencies, India Ratings and Research (Ind-Ra) and Fitch Ratings continue to be upbeat about India’s GDP growth in 2024-25.
Ind-Ra’s July forecast expects GDP to grow by 7.5 per cent on account of sustained government capex and emerging private capex cycle supported by the Budget.
Fitch Ratings, in June, projected a 7.2 per cent growth driven primarily through elevated consumer confidence boosting consumer spending and a rise in investment.
Meanwhile, S&P Global, in June, maintained the projected GDP of 2024-25 to grow at a lower 6.8 per cent citing high interest rates and low fiscal stimulus shrinking the demand.
Moody’s Rating projects GDP in calendrer year 2025 to grow by 6.5 per cent in July, compared to 6.6 per cent in May.
Other major forecastors including SBI, in August, moderated expected real GDP growth at 7 per cent in FY25 owing to global challenges.
On the other hand, Deloitte revised its projection to 7.2 per cent in August owing to domestic policy reforms, ease in global electoral uncertainty and rise in private investments after ECB reduced the interest rates.
Six of 25 agencies expect India’s real GDP to grow by 7 per cent in 2024-25.
Nomura’s March 2024 forecast is at the lower end of the spectrum with a growth forecast of 6.2 per cent.
UNCTAD and ICRA come next at 6.5 per cent.
At the other end is the 8 per cent forecast by Confederation of Indian Industry.
Bank of Baroda is close at 7.8 per cent.
Passenger Vehicles sales running on seasonal fuel
CMIE also presented outlook for passenger vehicle sales. It says that preliminary data from six original equipment manufacturers (OEM) in the passenger vehicles category shows that sales have marginally grown in July 2024 over the previous month. The cumulative sales of passenger vehicles from these OEMs inched up by 2 per cent, says the think tank. The six OEMs have accounted for 93-94 per cent of the total sales in the category in recent months.
The sales of passenger vehicles are primarily considered an indication of urban demand. Urban sentiments around buying consumer durables have been climbing up over the last few months. In July 2024, the proportion of households that said it was a good time to buy consumer durables moved up to 31 per cent from 29.4 per cent in June.
Simultaneously, the number of salaried persons increased by 3.6 per cent in July over June.
This was the third consecutive month when there was such an increase.
"These point at a strong urban sentiment and, thus, a possible high demand for consumer durables including passenger vehicles," says the outlook report. "The area of concern for passenger vehicles sales will be rural areas. IMD has forecast a higher-than-normal rainfall in September 2024. In case of excess rainfall, the standing kharif crop could be damaged. This would further dent already dwindling rural sentiment around buying consumer durables. Consequently, it will have an impact on rural incomes and, hence, the demand for passenger vehicles," CMIE says in its report.
"Thus, we expect the urban demand to effectively mask the rural dent in passenger vehicles demand. This could lead to a reversal of trend as seen in the seasonally adjusted data of passenger vehicles sales till now," says the outlook.
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