Transiting From 2024 To 2025 Will Have Its Uncertainties

Forecasts for FY25 have been pruned to less than 7%, but the foundations seem resilient

- Madan Sabnavis

In 2024, the external environment turned out to be benign, as evidenced by stability in crude prices. This was despite the spread of the Israel-Hamas war and the continued battle in Ukraine. Geo-politics, therefore, took a backseat.

Looking inwards, a good monsoon also meant that worries on the farm front were minimal. The general elections, however, caused some disruption as government spending got deferred, which in turn affected private investment decisions. Against this background, how has the Indian economy performed?

On the positive side, growth has been rather stable, and while forecasts for FY25 have been pruned to less than 7%, the foundations appear to be fairly resilient. Data for the second quarter reveal steady performance of services and agriculture, which continue to be the bedrock of the growth process.

Second, agricultural production is expected to be robust, with both kharif and rabi benefiting from the good monsoon and high reservoir levels.

Third, rural demand has revived as seen in consumer sales since October, which bodes well for demand. Fourth, the banking system has grown stronger in terms of asset quality and capital availability, and is well placed to meet the challenge of rising credit.

Fifth, exports have turned around, albeit mildly, from negative growth to around 2% for the first eight months, which is a comfort.

Sixth, FDI (foreign direct investment) continues to be buoyant at $42 billion in the first half of the year as investors continued to repose faith in the fastest growing economy.