Government spending will increase, according to the August Economic Review of the Ministry of Finance

New Delhi: India’s economic growth, which slowed in the first quarter of 2024-25 due to subdued government capital expenditure (capex) ahead of the general elections, is expected to pick up in the coming quarters on the back of higher public spending boosting investment, said a ” Economic review for August.

The document, written by the Department of Economic Affairs of the Ministry of Finance, said that rural incomes and demand are expected to increase in the coming months and food price inflation will be milder, provided no major adverse climate shocks occur.

She added that low oil prices are a positive for the Indian economy, whose high-frequency indicators through August fit well with the real gross domestic product (GDP) growth forecast for FY25 (25) of 6.5-7%. presented by the Department of Economy Survey 2023-24.

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The latest monthly Economic Review warned of emerging signs of stress in some sectors, which include a reduction in passenger vehicle sales and stockpiling, as well as a slowdown in sales growth of fast-moving consumer goods in urban areas in the first quarter of FY25.

India’s economic growth slowed to 6.7% in the first quarter of FY25 due to subdued fiscal spending ahead of the general elections.

The government’s final consumption expenditure was ₹4.14 trillion in Q1FY25, compared to ₹4.15 trillion in Q1FY24.

In August, car sales fell 1.8% to 352,921 units compared with 359,228 units in the same period last year, marking the second straight month of decline after a 2.5% decline in July.

However, at ₹11.11 trillion for FY25, the central government’s capital expenditure is much higher than ₹Under the revised estimate, $9.5 trillion has been allocated for FY24.

“The recent developments reviewed above point to a strong foundation for macroeconomic stability in India, characterized by sustained growth, investment, employment and inflation trends, a strong and stable financial sector, and a resilient external account, including a comfortable foreign exchange reserve position,” it said. latest report. “Przegląd Ekonomiczny” stated.

“The challenge on the macroeconomic front is to deal with the continuing uncertainty about the global economic outlook. We will likely see a cycle of interest rate cuts around the world amid fears of recession in developed economies and continuing geopolitical conflicts,” he added.

Read also | ADB maintains Indian economy growth forecast for FY25 at 7%

In August, retail inflation in India remained below 4% for the second month in a row. The latest inflation data was 3.65%, also the second lowest in 12 months, the lowest in July.

The Reserve Bank of India (RBI) has kept the repo rate – the interest rate at which it lends money to commercial banks and financial institutions – unchanged at 6.5% from February 2023.

Regulation of interest rates is a key instrument for the central bank to control inflation.

A system of higher interest rates makes borrowing costs more expensive, reducing demand among banks, financial institutions and the general public, which in turn can lower consumer spending and inflation.

However, with global central banks, especially those in advanced economies, determined to cut interest rates, the RBI is also expected to cut repo rates in the coming quarters.

In the latest Economic Review, he warned that the risk of a possible correction has increased in the face of a global stock market boom, reinforced by recent political statements in several countries.

“If the risk materializes, the fallout could be felt around the world,” he added.