Vikrant Shekhawat : Nov 03, 2024, 02:20 PM
Economy of India: India's economy has been growing rapidly for the past few years, with the country's GDP growth remaining above 7% every year. However, many concerns are being raised about India's economic growth in the current financial year. Institutions like the International Monetary Fund (IMF) and the World Bank are giving India's growth outlook of 7% or more, but will this really happen? The answer to this question is hidden in inflation figures and declining government expenditure.Analysis of Ernst & Young reportA recent report by Ernst & Young (EY) states that if India has to maintain GDP growth of 7% or more in FY 2025, then it will have to focus on two important points: keeping government investment strong and controlling inflation. The EY report mentions that the current growth outlook is mixed, and the Reserve Bank of India (RBI) has maintained caution in its monetary policy due to rising inflation.Rising inflation problemInflation on the Consumer Price Index (CPI) reached 5.5% in September 2024, leading to average inflation of 4.2% in the second quarter of FY24, slightly higher than the RBI's target of 4.1%. Third quarter estimates suggest that inflation could rise to 4.8%, prompting the RBI to delay cutting interest rates.The RBI kept its repo rate steady for the 10th consecutive time during the October monetary policy review, while the US Federal Reserve cut interest rates in September. Despite this, the RBI is optimistic about India's real GDP growth and is projecting a rate of 7.2%, based on an increase in personal consumption and investment.Reduced government spendingGovernment investment has declined in recent times, falling to around 19.5%. Government spending plays an important role in the country's economic growth. While personal income tax revenue is witnessing a growth of 25.5%, corporate tax revenue has declined by 6%. This situation poses a challenge for the government, which is resulting in a sharp decline in capital expenditure.Analysis of Economic DataRecent economic data indicates a slowdown in growth. The manufacturing PMI fell to 56.5 in September, while the service PMI fell below 60 for the first time since January 2024. Also, the Index of Industrial Production (IIP) has declined for the first time since October 2022, reflecting macroeconomic challenges. The IMF recently projected India's growth at 7%, down from 8.2% in the previous fiscal, and 6.5% for FY26. This slowdown has been attributed to a lack of demand.ConclusionIndia's economy is currently facing many challenges. Rising inflation and reduction in government investment may put pressure on GDP growth. According to the report of Ernst & Young, if India has to maintain its growth, then it will have to face these challenges. The government will have to take necessary steps to strengthen the economy so that the pace of development can be maintained. In the coming times, these decisions will determine the economic direction of India.