Driven by high capital expenditure (capex) and investment by the government in public goods, the Indian economy is expected to register a growth rate of 7.1-7.4 per cent in the current financial year, according to the National Institute of Public Finance and Policy (NIPFP).
This is above the Reserve Bank of India’s (RBI) forecast of 7 per cent.
In its latest year-end macro-economic review released on Friday, the government body said that though the private sector capex is yet to pick up steam, it’s the unprecedented increase in the government capex during the COVID-19 pandemic that is continuing to have reverberations and drive the growth trajectory upwards.
However, the review by the NIPFP also listed compression in the government consumption expenditure and a subdued growth in private consumption as downward risks to the forecast.
Apart from the strong capex push by the government, optimism regarding the Indian economy has been stemming from robust domestic demand and sustained growth in business and consumer confidence.
Earlier on Thursday, the finance ministry in its monthly economic report for March had noted that a pickup in rural demand and sustained momentum in the manufacturing sector will propel the growth in FY25.
“The optimism regarding growth prospects is also reflected in consumer and investor perceptions. As per the latest consumer confidence survey, households’ sentiments on the general economic situation and employment prospects recorded notable improvements for both the current period as well as the upcoming year. The manufacturing sector is also expected to maintain its momentum on the back of sustained profitability and pickup in rural demand,” the review has noted.
On the inflation front, the yearly review says that retail inflation is expected to remain at 5 per cent in FY25, as the upsurge in food prices and a risk of a rebound in crude oil prices due to conflicts in West Asia pose a significant upward risk to inflation in the country.
Earlier on Wednesday, the RBI in its State of the Economy report had also cautioned that while the retail inflation rate was within sight of hitting the 4 per cent target, extreme weather events and an increase in crude oil prices due to geopolitical uncertainties posed a risk.
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