Amid heightened external uncertainties caused by the tariff war triggered by the US, the finance ministry on Wednesday exuded confidence in India’s short-term economic prospects. High-frequency indicators suggest improved growth momentum in the current quarter (January-March), the ministry said in its monthly economic review.
The uptick in Q4FY25, it added, is “likely driven by improved export growth, pick-up in government capital expenditure post-elections and impetus to economic activity” due to the Kumbh Mela, the ministry noted. The economy is expected to expand by 6.5% in 2024-25, it maintained.
It cautioned against geopolitical tensions, increasing uncertainty around trade policies, volatility in international commodity prices and the financial market , all of which pose significant risks to the outlook for growth next year But the ministry added that, if the private sector were to invest in the economy, banking on the resilience of the domestic economy, the risks to growth outlook could be “overpowered considerably.” It is essential that the industry recognises the mutual endogeneity of its investment spending and consumption demand,” the ministry said. It also saw vigorous agricultural activity supporting rural demand.
Taking into consideration, the upsides and downsides to growth, the Economic Survey for 2024-25 had projected GDP growth in FY26 to be between 6.3% and 6.8%.
The proposed changes in the personal income tax structure are expected to improve the disposable incomes of the middle class and their consumption, the economists in the finance ministry who drafted the monthly report for February wrote.
The Centre sharply raised the income tax exemption limit to Rs 12 lakh from Rs 7 lakh in the new tax regime, which the government said would leave around Rs 1 lakh crore cash in the hands of taxpayers.
The 25-basis point policy rate cut in February, as part of a more accommodative monetary policy and enhanced liquidity provisions, can also bolster the growth momentum.
The Union Budget’s focus on longer-term development drivers and reforms, anchored around the ambition of Viksit Bharat, adds to the confidence in domestic economic resilience amidst significant global uncertainties.
The expectation of record production of food grains in 2024-25 will help moderate food inflation in the coming months. On the external front, the report noted that core merchandise exports have demonstrated notable resilience, growing by 8.2% from April to February of FY25.
Gross FDI inflows remain robust, increasing by 12.4% during FY25 (April to January). The foreign exchange reserves are adequate to cover more than 11 months of imports.
The global economy continues to be characterised by elevated uncertainty stemming from geopolitical tensions and trade policy developments, the report noted.
In the face of such strong global headwinds, it said, economic growth picked up in Q3 of FY25, driven by a recovery in private consumption and an increase in core merchandise (non-oil, nonbullion) exports.
Observing that the Union government finances continue to maintain a fine balance between fiscal consolidation, welfare and growth, the report said the Budget 2025-26 announced a cautiously ambitious debt consolidation path that projects union government debt to decline by at least 5.1 percentage points over six years from 2024-25 to 2030-31.
In the near full-year data available for FY25, there is a close convergence of actual deficits, critical ratios, and essential expenditures with their budget estimates, indicating a sustained commitment to fiscal targets, it added