On 25th October 2024, New Delhi (Delhi)-based Economic think tank National Institute of Public Finance and Policy (NIPFP) released its “FY2024-25: Mid Year Macroeconomic Review”. It has lowered India’s Gross Domestic Product (GDP) growth forecast to 6.9-7.1% for Financial Year 2024-25 (FY25), from its previous estimate of 7.1-7.4% during the April review.
- As per the report, Capex contracted by 19.5% during April-August 2024 compared to April-August 2023 due to election code of conduct. It has projected that capex will pick up in the 2nd Half (H2) of FY25.
- The report noted that despite adverse global conditions, India’s economic growth is back to the high growth trend of 7-8% observed prior to slowdown since 2017-18.
Key Findings:
i.Growth: As per the report, aggregate demand growth (GDP) in 1st Quarter (Q1: April-June) of FY25 is moderated at 6.6% Year-on-Year (Y-o-Y), due to contraction in government spending and net exports, despite accelerated private consumption growth.
- Similarly, Gross Value Added (GVA) growth in 1st Quarter (Q1) of FY25 is moderated at 6.8% Year-on-Year (Y-o-Y), due to tepid growth in tourism, travel and financial services.
ii.Inflation: The report projected that average annual inflation will remain at 4.3%, slightly higher than the Monetary Policy Committee (MPC) target of 4%.
- It has also estimated that inflation for Q3 and Q4 of FY25 will be at 4.2% and 3.8% respectively. It has outlined certain upside risks such as surge in food inflation, rebound in core inflation.
- As per the report, headline inflation declined below 4% target in August 2024, but rebounded to 5.5% in September 2024 due to high food price inflation.
Note: The Reserve Bank of India (RBI) has projected the inflation to remain at 4.5%, 4.8% and 4.2% for FY25, Q3 FY25, Q4 FY25 respectively.
iii.Fiscal Deficit: As per the report, the budgeted fiscal deficit decreased to 4.9% in FY25 and is on track to achieve the government’s FY26 target of 4.5%.
iv.External Sector: The report noted that Current Account Balance (CAB) showed negative growth of 1.1% of GDP in Q1FY25 from a surplus of 0.5% of GDP in Q4FY24 and a deficit of 1% of GDP in Q1 of FY24.
- Merchandise trade deficit increased from USD 56.7 billion in Q1FY24 to USD 65.1 billion in Q1FY25 due to higher oil imports.
v.Gross Tax Revenue(GTR):The report observed GTR increased 12% during April-August 2024, including the income tax growth of 25.5% , customs duty growth of 13% and Central Goods and Services Tax (CGST) growth of 10.4% due to continuing momentum of economic activity.
- It has estimated that capex budgeted to increase by 17% in FY25 compared to only 5% for revenue expenditure.
About National Institute of Public Finance and Policy (NIPFP):
Chairman- Dr. Urjit Patel
Headquarters- New Delhi, Delhi
Established- 1976
