India projects ‘cautiously optimistic’ outlook on growth

The finance ministry has projected a “cautiously optimistic” outlook on growth in its monthly economic review for October amid a bountiful farm output the comes against worsening geopolitical tensions.

The agriculture sector is getting set to reap the benefits of a favorable monsoon, higher minimum support prices and adequate supply of inputs, as the prospects of a bountiful farm output blunt the inflation outlook despite existing price pressures in select food items, the monthly economic review said.

Early November trends signal a moderation in key food prices, though geopolitical factors may continue to affect domestic inflation and supply chains, the ministry said in its review.

Amid growing geopolitical tensions, domestic gauges of economic activity, including indicators of rural and urban demand and supply side variables such as purchasing managers’ index and e-way bill generation, showed a rebound last month, the review said.

The formal workforce is also expanding, with notable increases in manufacturing jobs and a strong inflow of youth into organized sectors, it added.

On the global front, the recovery in Indian goods exports may face challenges amid softening demand in developed markets, but trade in services is sustaining momentum, it added.

“The dynamics of global interest rates, earnings growth and valuations, geopolitical developments and policy decisions of the next administration in the US will determine the course of trade and capital flows,” the review said.

Recent developments in the ongoing conflict between Russia and Ukraine have caused some concern in the financial markets, with safe-haven assets such as US Treasuries and gold finding a bid, it added.

As the calendar year draws to a close, the global economy projects a mixed outlook, the review said.

Structural weaknesses in parts of Europe and China’s slowdown continue to weigh on growth but, in contrast, the US economy has surpassed earlier expectations, maintaining steady expansion.

Narrowing output gaps and declining commodity prices have prompted central banks worldwide to shift their policies and adopt more accommodative monetary stances, the review said

Taking these factors into account, the International Monetary Fund (IMF) has maintained its global growth projections for 2024 and 2025 at 3.2%, the said, adding that set against this background, India is quietly holding its ground.

S&P Global cuts India growth forecast

In a separate development, credit rating firm S&P Global on Monday cut its growth forecast for India to 6.7% in the coming fiscal year from the earlier 6.9%.

For the current fiscal (FY25), however, the rating agency maintained its growth forecast at 6.8% as “high interest rates and a lower fiscal impulse temper urban demand”.

“In India, we see GDP growth easing to 6.8% this fiscal as high interest rates and a lower fiscal impulse temper urban demand,” S&P Global said in its latest quarterly economic update for Asia-Pacific.

“While PMIs remain convincingly in the expansion zone, other high-frequency indicators indicate some transitory softening of growth momentum due to the hit to the construction sector in the September quarter,” it said.

Persistent food inflation is delaying rate cuts by the Reserve Bank of India (RBI).

“We expect the central bank to cut only once in the current fiscal (ending 31 March). Consumer inflation is fueled by supply shocks in agriculture, which have driven up food prices. These shocks are linked to changing rainfall patterns and climate change-driven heatwaves,” it said.

“Traditionally volatile and hard to predict, food inflation has become even more capricious lately. The RBI cannot ignore food inflation when considering rate cuts. Food items make up nearly 46% of the inflation basket and persistently high food inflation raises inflationary expectations,” it added.