India’s Economic Resilience: A Growth Engine Facing Hurdles

India's economy is projected to grow by 6.4% in the fiscal year 2024-25, according to the National Statistics Office's first advance estimates. This marks a slowdown from the 8.2% growth observed in the previous fiscal year. 

Inflationary pressures have moderated, with average retail inflation easing to 4.9% during April-December 2024, down from 5.4% in 2023-24. The Reserve Bank of India (RBI) projects inflation to further decline to 4.6% in Q1 and 4.0% in Q2 of FY 2025-26. 

The fiscal deficit target has been revised to 4.8% of GDP for FY 2024-25, with plans to reduce it below 4.5% by FY 2025-26. Capital expenditure is set at ₹11.21 lakh crore (3.1% of GDP) for FY 2025-26, aiming to stimulate economic growth. 

Despite these positive indicators, challenges persist. In December 2024, industrial output grew by 3.2% year-on-year, the slowest pace in four months, due to a deceleration in the manufacturing sector.  Additionally, private banks anticipate higher defaults on small and personal loans until mid-2025, attributed to the economic slowdown. 

To address these issues, the new RBI Governor, Sanjay Malhotra, has implemented measures such as interest rate cuts and delayed banking sector regulations to support growth. However, economists caution that short-term growth initiatives may lead to increased inflation if structural supply-side challenges remain unaddressed. 

Source: pib.gov.in, Reuters