Economic Review for November 2024

The Finance Ministry's monthly economic review for November 2024 highlights several factors influencing India's economic trajectory.

Monetary Policy and Macroeconomic Challenges

• The combination of the RBI's monetary policy stance and macroprudential measures may have contributed to a slowdown in demand.
• Structural factors, along with hiring and compensation practices in the corporate sector, have impacted economic growth in the first half of the financial year.

Growth Outlook for 2024-25

• The second half of 2024-25 is expected to see improved growth due to: 
  1. Reduction in the cash reserve ratio.
  2. Lower inflation outlook.
  3. Healthy progress in rabi sowing.
  4. Expected rise in capital expenditure in sectors like cement, iron, steel, mining, and electricity.
• New uncertainties for 2025-26 are emerging due to global economic factors, including aggressive policies and uncertain global trade growth.

Monetary Policy Considerations

• Emerging market currencies are under pressure due to US policy rate considerations, impacting domestic monetary policy decisions.
• The increase in borrowing costs for advanced economies and weakening of emerging market currencies are key concerns.

GDP and Inflation

• India's GDP growth slowed to 5.4% in July-September, the lowest in nearly two years.
• The RBI reduced the cash reserve ratio from 4.5% to 4% to boost credit growth.
• Inflation is projected at 4.8% for FY25, with Q3 at 5.7% and Q4 at 4.5%.
• Food price pressures have eased due to fresh produce influx and healthy rabi sowing.

Sectoral Outlook and Demand

• Cement, iron, steel, mining, and electricity sectors are expected to benefit from increased government capital expenditure.
• Industrial activity is anticipated to gain momentum, supported by a strong services sector performance.
•  Demand trends indicate: 
  1. Rural demand remains strong with significant increases in two & three-wheeler and domestic tractor sales.
  2. Urban demand is recovering, evidenced by a 13.4% year-on-year growth in passenger vehicle sales and robust domestic air passenger traffic.