The Indian economy is poised for solid growth next year, with the seven-quarter low of 5.4% expansion in the September 2024 quarter seen as an aberration.
However, that will depend on several variables falling in place-revival in consumption and investment, softer inflation and interest rates, and a more benign global geopolitical situation.
Consumption, for one, could get a boost from the expected revival in rural demand. Rabi prospects look promising thanks to good rain and healthy reservoir levels, but winter conditions will determine the harvest.
Urban demand is also expected to improve, helped by a recovery in corporate profits next year due to a favourable base effect, as 2024 witnessed muted growth.
This, in turn, will lead to an acceleration in urban wage growth that will spur consumption.
Inflation, a worry in 2024, is projected to ease to 4.8% by the central bank. That could help lower interest rates, giving a lift to spending.
Public investment, the other key driver of the economy that had slowed due to the general elections this year, is expected to gain momentum. Investment demand, as indicated by gross fixed capital formation, slowed to 5.4% in the second quarter of FY25. Higher public investment is also expected to catalyse private investment, according to experts.
However, the uncertain geopolitical environment could be a dampener. All eyes are on January 20 when Donald Trump takes office as the US President. His tariff threat has prompted actions at home by the government and industry.
It has to be seen if US policy will impact Indian exports and how much New Delhi would have to negotiate. India’s exports grew 2.2% in the April-November FY25. Financial market risks, escalation in global conflicts and climate could also dent economic prospects.
