Indian Economy Growth Revised To 6.5% In FY25 As Urban Consumption Remains Sluggish: FinMin

The report also highlights the positive effect of the RBI's decision to reduce the cash reserve ratio (CRR) from 4.5 per cent to 4 per cent in its most recent monetary policy meeting

The centre has projected the economy will grow by 6.5 per cent in the fiscal year 2024-25 (FY25), following a sluggish first half of the current fiscal year, driven by gains in agricultural and industrial activity, according to the Finance Ministry's Monthly Economic Review released on Wednesday. The review highlights the Reserve Bank of India's (RBI) monetary policy stance as one of the factors contributing to the slowdown in the first half of FY25.

The GDP growth rate dipped 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. Despite industry pressure, the RBI has kept its key rates unchanged at 6.5 per cent for 11 consecutive monetary policy meetings, citing concerns over 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 finance ministry said in the report.

The report also highlights the positive effect of the RBI's decision to reduce the cash reserve ratio (CRR) from 4.5 per cent to 4 per cent in its most recent monetary policy meeting. “That should help boost credit growth, which has slowed a little too much and quickly in FY25,” the report stated.

Additionally, the report attributes the slowdown in urban consumption growth to reduced private sector hiring.

The FinMin report reveals that the growth outlook for the duration from October to December seems better, as the remand in the ruler area remained resilient and the demand in the urban area started to pick up in the quarter’s first two months. 

"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 reads.

It added, “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.”