We are pleased to present the September 2024 edition of EY India Economic Pulse by our Tax and Economic Policy Group. This edition highlights India’s robust economic trajectory and resilience amid global trends.
Key Highlights:
1. Stable Global Outlook: Global growth forecasts remain steady at 3.2%-3.3% for 2024-2025. Inflation and interest rates are generally on a downward trend, with a recent cut in US Fed interest rates by 0.5%.
2. India's Growth Trajectory: India is projected to grow at 7%-7.2% in FY 2025. The first quarter of FY2025 saw a 6.7% GDP growth year-on-year, slightly lower due to reduced government capital expenditure but still reflecting strong long-term growth drivers.
3. Consumption and Investment:
- Consumption: Private Final Consumption Expenditure (PFCE) grew by 7.4% in Q1 FY 2025, with improved rural and urban demand driven by strong consumption patterns.
- Investment: Gross Fixed Capital Formation grew by 7.5%, showing robust investment despite a reduction in central government capital spending. The construction sector saw notable growth at 10.5%.
4. Manufacturing Sector Performance: Manufacturing continues to grow well with a 7% growth in Q1 FY2025, supported by strong government push.
5. Macro-Economic Stability: Inflation has come down to 3.65%. The exchange rates and interest rates have been relatively stable. The fiscal deficit has significantly reduced from INR 6.1 lakh crores in April-July 2023 to INR 2.8 lakh crores in the same period for 2024. This reduction is driven by higher personal income tax revenues and controlled government expenditure.
6. Strong fund-raising environment: Stock markets are at record highs, and fund raising activities has surged. Mutual fund SIP contributions have doubled from June 2023 to June 2024, reflecting strong domestic investor confidence. FPI debt inflows remain positive, bolstered by the inclusion of Indian government bonds in key indices. Bank credit has grown 15%.
7. Continued growth in service exports: Service exports have slightly surpassed non-oil merchandise exports, indicating a shift in export dynamics. This, along with improved net exports and strong remittances, contributes to economic resilience.
Implementation of reforms, including enhancing ease of doing business, advancing energy transitions, and boosting manufacturing competitiveness, would support long-term economic expansion.