India Economic Pulse

We are pleased to present the July edition of EY’s 'India Economic Pulse', decoded by our Tax and Economic Policy Group. This edition underscores India's post-election focus on sustained growth through structural reforms in key sectors like infrastructure, manufacturing, taxation, and digital transformation. Despite global economic resilience, challenges such as rising interest rates persist. India's robust GDP growth of 8.2% in FY2024, fuelled by manufacturing and construction, sets the stage for continued momentum in FY2025, underpinned by stable macroeconomics and a push for increased private sector investment.

Here are the key highlights from the content:
 

1. Global Economic Resilience: The global economy projects stable growth of 3.2% for 2024-25 despite challenges like increasing real interest rates and geoeconomic fragmentation, with both service and manufacturing PMIs remaining positive.
2. Strong GDP Growth in FY24: India achieved an 8.2% GDP growth driven by robust manufacturing and construction sectors, supported by high gross fixed capital formation and government capex growth exceeding 29%.
3. Sectoral Growth: Manufacturing and construction sectors surged, with manufacturing growing at 9.9% and significant growth in steel and cement sectors due to infrastructure spending.
4. Domestic Economic Indicators: FY24 indicators such as buoyant GST collections, rising electricity demand, and steady credit growth reflect strong domestic demand, although some indicators showed moderation at the start of FY25.
5. Fiscal Management: Gross tax revenue grew by 13.4% in FY24, aiding fiscal deficit reduction to 5.6% of GDP through better-than-anticipated revenues and reduced subsidies.
6. Macroeconomic Stability: CPI moderated to 4.75% in May 2024, nearing RBI's 4% target, with stable interest rates, low net NPAs, and robust credit creation indicating a strong financial system.
7. Investment Trends: FDI inflows remained constant and VC and PE investments declined by 9% in FY24. There is a need for a revival in private capex, especially in manufacturing and infrastructure.
8. Economic Outlook: Major global rating agencies upgraded India’s credit outlook to 'positive', expecting continued economic momentum supported by government capex, with RBI projecting FY25 growth over 7.2%.

Given the above, the government's 100-day agenda which is expected to maintain its focus on fostering India's long-term growth through concrete implementation strategies and inclusive consultation. The clarity and continuity of policy under the new government will be crucial in bolstering investor confidence moving forward.