Outlook for H2 FY24-25 GDP

 

Domestic Developments

Recent movements in high-frequency indicators suggest a recovery in H2:2024-25 from the slowdown experienced in H1. Supply chain pressures remained below historical average levels, despite a marginal uptick in December. Based on the economic activity index (EAI), the seasonally adjusted GDP growth nowcast for Q3:2024-25 is placed at 6.2 per cent.

Aggregate Demand

The first advance estimates (FAE) of national income released on January 7, 2025, placed real GDP growth for 2024-25 at 6.4 per cent, compared with 8.2 per cent a year ago. While private and government consumption expenditure increased, and net exports contributed positively, investment growth moderated. In fact, gross fixed capital formation (GFCF) slowed to 6.4 per cent in 2024-25 from 9.0 per cent growth in 2023-24. A decisive factor in this investment slowdown was lower capital expenditure by both the Union and State Governments. On the external front, India's exports grew by 5.9 per cent in 2024-25, primarily due to steady growth in services exports. Imports contracted by 1.3 per cent, and enabled net exports to contribute positively to GDP growth by 1.7 percentage points.

High-frequency indicators suggest that aggregate demand firmed up in Q3:2024-25. E-way bills rose on a y-o-y basis in volume terms in December, and toll collections recorded strong growth both in volume and value terms. While overall automobile sales declined in December 2024, passenger vehicle sales recorded sound growth. Domestic tractor sales showed robust growth in December. Petroleum consumption expanded by 2.1 per cent (y-o-y) in December, as petrol, aviation turbine fuel (ATF), and diesel recorded strong growth of 10.8 per cent, 8.7 per cent, and 6.0 per cent, respectively.

India's investments in renewable energy are rising faster than other countries. According to the International Energy Agency (IEA), India's annual renewable capacity additions are expected to quadruple from 15 GW in 2023 to 62 GW in 2030. In November 2024, several policy decisions were undertaken at COP29 held in Baku, Azerbaijan, to help countries deliver their climate plans more quickly and cheaply, facilitating faster progress in reducing global emissions this decade.

Inflation

Headline inflation, as measured by y-o-y changes in the all-India consumer price index (CPI), eased to a five-month low of 4.3 in Jan 2025, from 5.2 per cent in December 2024 and 5.5 per cent in November 2024. There is decline of 91 basis points in headline inflation of January, 2025 in comparison to December 2024. It is the lowest year-on-year inflation after August, 2024

Year-on-year inflation rate based on All India Consumer Food Price Index (CFPI) for the month of January 2025 over January, 2024 is 6.02% (Provisional). Corresponding inflation rate for rural and urban are 6.31% and 5.53%, respectively. All India inflation rates for CPI(General) and CFPI over the last 13 months are shown below. A sharp decline of 237 basis point is observed in food inflation in January, 2025 in comparison to December, 2024. The food inflation in January, 2025 is the lowest after August, 2024.Food inflation decelerated to 7.7 per cent in December from 8.2 per cent in November. In terms of sub-groups, a moderation in inflation was observed in respect of cereals, milk, vegetables, pulses, and sugar, whereas inflation in respect of meat and fish, eggs, oils and fats, fruits, prepared meals, and nonalcoholic beverages picked up. Deflation in prices of spices persisted.

Year-on-year Fuel & light inflation rate for the month of January, 2025 is -1.38 %. Corresponding inflation rate for the month of December, 2024 was -1.33%. It is combined inflation rate for both rural and urban sector.Fuel and light deflation narrowed to (-)1.4 per cent in December from (-)1.8 per cent in November on account of a lower rate of deflation in kerosene and LPG prices and a higher rate of inflation in electricity prices. 

In January 2025, India's core inflation rate was 3.74%, which is a decrease from 3.64% in December 2024. This is considered low. Core inflation remained steady at 3.7 per cent in December 2024, the same as in November. Among the sub-groups, inflation moderated in case of housing, transport and communication, and personal care and effects sub-groups; it remained steady in respect of clothing and footwear, household goods and services, health, and education. Inflation in respect of pan, tobacco, and intoxicants, and recreation and amusement, however, registered an increase in inflation.

In terms of regional distribution, rural inflation stood at 5.76 per cent, higher than urban inflation (4.58 per cent) in December 2024. The majority of the states faced inflation less than 6 per cent.