Will India’s Growth Stay Above 7% This Year? EY Report Reveals Key Factors - Read Now

Despite strong growth over the past few years, Indian growth is susceptible to not attaining the 7 percent or better rate attained in the last fiscal year. The international institutions like IMF and World Bank still retain their optimism, but more adverse factors weigh upon total growth. End. As is apparent in the latest report issued by EY, India's growth FY2025 would depend on continuing very strong government investment and control of inflationary trends.

EY Report Highlights Concerns.

EY observed that the GDP growth rate will be hard to maintain at 7% unless the government support and the control of inflation are appropriately given. The economic data reveals that there is recent deceleration in the growth momentum. For instance, India's Manufacturing PMI slipped to 56.5 in September, and the Services PMI went below 60 for the first time since January 2024, suggesting deceleration in both production and new orders.

EY's research also says that inflation can be an important issue, as the CPI inflation for India for the month of September was at around 5.5 per cent, which just breaches the upper limit of RBI's target range. Its CPI inflation is going to increase to 4.8 per cent in Q3 FY2024, a number that is going to delay the probable interest rate cuts by RBI. During such a tough global economic context, the RBI kept the repo rate unchanged for the 10th consecutive month; it has been carrying out that inflationary cautiousness.

Government Spending and Revenue Trends

Another salient factor that will shape India's growth trajectory will be government spending. According to a report by EY, government investment has declined by almost 19.5%, which hurt the overall economic momentum. The other significant decline observed is in capital expenditure because, in the history of India, government expenditure has been the main component driving the country's economic activities. However, there is some positive development in terms of personal income tax collections, which increased by 25.5%. At the same time, the revenue from corporate taxes dropped by 6%, making it difficult for the government to sustain public spending in the near future.
 
Mixed Economic Indicators and Future Outlook

Other economic indicators are showing growth as complicated. India's Industrial Production Index has recently posted its first fall since October 2022 and hence points to the still confronted economic challenges. International institutions, therefore, have remained cautious in their optimism due to these mixed signals. The IMF lowered its projection to 7 percent growth for FY 2025 from the earlier estimated 8.2 percent and also expects moderation further to 6.5 percent for FY 2026 because of soft growth in demand.

In that scenario, according to an EY report, mainly for reasons of proactive policy measures, India's growth has come to be dependent upon it. It would continue to require keeping a firm investment in infrastructure from government, and effective control of inflation to reach a level of growth of 7% or more. A tight monetary and fiscal policy equilibrium would be necessary growth under such inflationary pressures and a tight fiscal environment.

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