New Delhi: In light of changing economic circumstances, Deloitte India has updated its annual GDP growth forecast for 2024-25 to a range of 6.5-6.8 percent, with projections for the subsequent year set between 6.7-7.3 percent.
The multinational professional services firm indicated that this revision underscores the necessity for cautious optimism as the economy faces increasing uncertainties in global trade and investment.
For the second quarter of 2024-25, GDP growth was recorded at 5.4 percent year-over-year, which did not meet market expectations.
Consequently, the Reserve Bank of India has adjusted its annual growth prediction to 6.6 percent, while the latest survey from the National Statistical Office estimates a growth rate of 6.4 percent for the current fiscal year.
Rumki Majumdar, an economist at Deloitte India, noted that "Uncertainties surrounding elections in the first quarter, coupled with subdued activity in construction and manufacturing in the following quarter due to weather disruptions, have contributed to a lower-than-expected gross fixed capital formation. The government's capital expenditure reached only 37.3 percent of its annual targets in the first half, a significant drop from last year's 49 percent, indicating a delay in the necessary momentum."
"Moreover, a moderated global growth outlook, potential changes in trade policies among industrialized nations, and tighter monetary policies than previously expected in both India and the US could impede the synchronized recovery in Western economies that we had anticipated for this fiscal year."
Deloitte emphasized that India must adapt to the shifting global environment and leverage its domestic strengths to foster sustainable growth. One approach could involve economic decoupling from global uncertainties while tapping into India's unexploited potential. The firm highlighted several indicators that demonstrate resilience in specific sectors as noteworthy.
Rural consumption continues to show resilience, supported by strong agricultural output and increasing disposable income in these areas. The services sector is also flourishing, particularly in finance, insurance, real estate, and business services, which are experiencing notable growth.
This sector plays a crucial role in enhancing urban income and boosting services exports, which have recently reached record levels. Despite facing both global and domestic challenges, India is advancing within global value chains, as evidenced by the growing proportion of high-value manufacturing exports, especially in electronics and machinery.
The narrative surrounding India's capital markets reflects a notable resilience. From October to December 2024, Foreign Institutional Investors (FIIs) withdrew substantial funds due to geopolitical uncertainties related to the U.S. elections, slower corporate earnings, and China's stimulus actions in September 2024.
These outflows were reminiscent of those seen during the COVID-19 pandemic. Nevertheless, the Sensex exhibited relative stability, aided by increased participation from Domestic Institutional Investors (DIIs), which helped cushion the effects of FII withdrawals.
Majumdar noted that prior to 2020, the Indian capital market was highly sensitive to FII movements, but this sensitivity has diminished since then.
In the July-September quarter of the financial year 2024-25, the Indian economy recorded a real growth rate of 5.4 percent, falling short of the Reserve Bank of India's forecast of 7 percent. Similarly, the GDP growth for the April-June quarter was also below the central bank's expectations.
For India, the GDP figures for the second quarter of 2024-25, along with headline consumer price inflation, present a challenging scenario of slowing growth coupled with high inflation. Policymakers are particularly concerned about food prices, as they aim to achieve a sustainable retail inflation rate of 4 percent.
