India’s growth momentum holds firm despite global challenges: Finance Ministry

India’s economy is set to grow at 6.5% in FY25, despite external challenges, driven by strong agricultural output and a resilient service sector, as stated in the monthly economic report (MER) released by the Department of Economic Affairs.

The report also states that retail inflation eased to 3.6% in February 2025, led by a sharp decline in food inflation due to seasonal corrections in vegetable prices and effective government measures while agricultural production estimates indicate continued stability, with kharif and rabi food grain output expected to grow by 6.8% and 2.8%, respectively.

The union government has maintained a balance between fiscal consolidation and growth, with Budget 2025-26 outlining a clear debt-reduction path. The fiscal deficit and expenditure targets remain aligned with estimates, reinforcing confidence in economic management. The government’s capital expenditure is expected to pick up post-elections, further supporting economic activity, as stated in the report.

India’s equity markets have witnessed corrections after a prolonged bull run, leading to profit-taking by foreign investors. However, strong external inflows into debt markets and steady domestic investor confidence have mitigated the impact. On the external front, the report highlights that core merchandise exports (non-oil, non-bullion) grew by 8.2% during FY25 (April to February), demonstrating resilience. Gross FDI inflows increased by 12.4% in the same period, while foreign exchange reserves remain adequate to cover over 11 months of imports.

Employment trends remain stable, with the urban unemployment rate unchanged in Q3 FY25. Various employment outlook surveys indicate optimism and an increased willingness to hire in the coming quarter. The report notes that inflationary pressures have eased to a seven-month low in February, largely due to declining food inflation, and the expectation of record food grain production in 2024-25 is likely to keep inflation in check.

However, risks remain, including geopolitical uncertainties, volatile commodity prices, and financial market fluctuations.

The report states that economic growth in Q4 is expected to be supported by improved export growth, post-election government capital expenditure, and economic activity linked to events like the Kumbh Mela. The proposed changes in the personal income tax structure are expected to improve disposable incomes and boost consumption, while the 25-basis point policy rate cut in February, coupled with enhanced liquidity provisions, is likely to support growth momentum.