The finance ministry stated on Friday in its economic assessment for February that the Indian economy will be driven by robust investment activity and solid private consumption demand in FY25, despite slow global growth. But obstacles like the effects of the ongoing Red Sea crisis and growing crude oil prices cast a shadow over the future.
“Sustained increases in shipping costs due to disruption can drive up inflation. The crisis is also reverberating in global food prices. Disruptions in grain shipments from the Russian Federation, Ukraine, and Europe pose risks to global food security,” the ministry stated.
“The combined impact of higher freight costs, insurance premiums, and longer transit times could make imported goods significantly more expensive,” it added.
It further stated that the manufacturing sector will develop as a result of businesses expanding and emerging sunrise sectors acting as engines for creating high-quality jobs.
“Increased demand for residential properties in tier-2 and tier-3 cities augers well for furthering construction activity,” the finance ministry’s recent economic review read.
“Non-farm employment has revived, improving the capacity to absorb the labour leaving agriculture,” it continued.
The Reserve Bank of India (RBI) raised its growth prediction for the Indian economy from its previous estimate of 6.5% to 7% for the current fiscal year as of December.
On March 20, HSBC Global reported that private real estate demand is driving greater investment in India than public capital spending, defying the popular belief that this is the case.
“The government is raising capex meaningfully, but PSUs are cutting back, leaving the overall public investment ratio below pre-pandemic levels. Instead, it is private investment that has risen, led by dwellings & structures,” the report read.
“This chimes well with the rise in house sales and housing loan growth. But the other important component of investment – ‘machinery & equipment’ – remains weak, and it would be premature to call the start of a new investment cycle, at least at this point,” it added.
“The pick-up in summer sowing is likely to help reduce food prices,” the finance ministry’s latest monthly economic review said.
“On the external front, the narrowing merchandise trade deficit and the rising net services receipts are expected to result in an improvement in the current account balance in FY24,” it added.
Bloomberg Index Services has announced that starting in January 2025, a selection of Indian government bonds will be included to its extensively followed developing market index. This move has the potential to draw $3–4 billion in investment flows starting the following year.
“Improving global investor confidence in India has started reflecting in foreign portfolio investment flows…Bond investors will base their investment decisions based on their perception of its persistence. On the whole, India looks positively towards the dawn of FY25,” it added.
“The announcement by Bloomberg that India would be included in its bond index from January 2025 should bolster inflows, buoyed by the fiscal prudence that the government has demonstrated over the years,” the economic review stated.
