 "Economic growth seen at 6.5% in FY25, RBI policy pushed down demand: FinMin")
The Centre expects the economy to grow at 6.5 per cent in FY25 after a dull first half of the current fiscal, driven by gain in agricultural and industrial activity, according to Finance Ministry's Monthly Economic Review released on Wednesday. In the review, the ministry has cited the Reserve Bank of India's (RBI) monetary policy stance among the reasons for the slowdown in the first half of FY25.
The GDP growth rate fell to a seven-quarter low of 5.4 per cent in the July-September quarter, down from 6.7 per cent in the previous quarter. However, the RBI kept its key rates unchanged for 11 straight monetary policy meetings despite pressure from the industry, citing inflation.
“At the same time, the possibility that structural factors may also have contributed to the slowdown in H1 should not be ruled out. The combination of monetary policy stance and macroprudential measures by the central bank may have contributed to the demand slowdown,” the ministry report said.
Source: Finance Ministry's Economic Review for November
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The report also notes the positive impact of the RBI lowering the cash reserve ratio (CRR) from 4.5 per cent to 4 per cent in its last monetary policy meeting.
“That should help boost credit growth, which has slowed a little too much and quickly in FY25,” the report said. The report also attributes the slowing urban consumption growth to lower private sector hiring.
Demand to pick up in H2
The report states that the growth outlook for October to December appears bright, with rural demand remaining resilient and urban demand picking up in the first two months of the quarter.
"An increase in Minimum Support Price (MSP) for rabi crops, high reservoir level and adequate fertiliser availability bodes well for rabi sowing. Industrial activity is likely to gain traction," the report states.
The ministry says that the conclusion of the monsoon season and the expected increase in government capital expenditure are expected to support the cement, iron, steel, mining, and electricity sectors.
The services sector continues to perform well, with PMI services being in an expansionary zone in October and November 2024.
On the demand side, the ministry said that the rural demand remains resilient highlighted by 23.2 per cent and 9.8 per cent growth in two and three-wheeler sales and domestic tractor sales, respectively.
"Urban demand is picking up, with passenger vehicle sales registering YoY growth of 13.4 per cent in October-November 2024 - and domestic air passenger traffic witnessing robust growth," the report states.