The outlook for the Indian economy appears bright, says a finance ministry report Indiablooms

New Delhi: Prospects of healthy rabi crop, sustained profitability of production and fundamental resilience of services are expected to support economic activity in financial year 2024-25, said a finance ministry report released on Tuesday.

The Reserve Bank of India (RBI) expects India's real GDP (gross domestic product) to grow by 7% in FY25 with balanced risks.

“Overall, the outlook for the Indian economy appears bright,” said the Monthly Economic Review for the month of January 2024.

The report said household consumption is expected to improve, while the outlook for capital formation is positive due to an upturn in the private investment cycle, improving business sentiment, healthy bank and corporate balance sheets and the government's continued investment drive.

The 30-page report said improving global trade prospects and increasing integration into the global supply chain will support net foreign demand.

“However, headwinds from geopolitical tensions such as supply chain disruptions and higher logistics costs, volatility in international financial markets and geoeconomic fragmentation pose downside risks,” it said.

The report further said that downside risks to trade include a rise in new commodity prices due to geopolitical shocks, including ongoing attacks in the Red Sea and supply disruptions, or more persistent underlying inflation in the developed world, leading to an extension of restrictive monetary policy conditions could lead.

“This could impact the expected recovery in global demand, thereby hurting the outlook for India's exports,” it said.

Citing recent inflation trends, the report said food inflation is expected to ease further in the coming months.

“Given the stable downward trend in core inflation and moderation in food prices, the prospects for a reasonably low headline inflation rate are good,” it said.

The RBI has revised the inflation forecast for the fourth quarter of fiscal 2024 downward to 5% in the February 2024 monetary policy statement from 5.2% in the previous MPC meeting.

(With UNI inputs)