TAG: GS-3: ECONOMIC
CONTEXT: A recent Moody’s report projected India to grow at 7.2% in 2024, highlighting factors such as improving rural demand, spending on infrastructure and moderating inflation, despite concerns about urban growth and geopolitical risks.
EXPLANATION:
More about news:
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- Despite concerns about moderate urban demand and high-frequency indicators signalling a slowdown, Moody’s retained India’s 7.2% economic growth projection in 2024.
- Improving household consumption, robust rural demand, rising capacity utilization, and continued government infrastructure investments are expected to sustain this momentum.
- Growth is forecasted to moderate to 6.6% in 2025 and 6.5% in 2026.
- Inflationary pressures, driven by food prices, recently breached the RBI’s upper tolerance limit, reaching 6.2% in October.
- However, Moody’s expects inflation to moderate as food prices ease with higher sowing and ample buffer stocks.
- The RBI has maintained a cautious stance, keeping the repo rate steady at 6.5% and is likely to continue with tight monetary policies in the near term to balance inflation risks and growth dynamics.
What are the rural and urban demand trends?
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- Rural demand is witnessing steady growth due to improved agricultural scenarios and rising incomes, while urban demand shows signs of moderation due to weak consumer sentiment. The festive season has boosted domestic consumption, further boosting economic activity.
- Government-led infrastructure spending, rising capacity utilisation and an improving business environment are expected to boost private investment.
- Key growth drivers include expanding manufacturing and services sectors, robust credit growth and strong consumer optimism.
- Healthy corporate and bank balance sheets with solid external positions and adequate foreign exchange reserves strengthen the resilient growth scenario.
Some risks to growth and inflation include:
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- Geopolitical conflicts: These can create headwinds for growth and inflation.
- Trade frictions: These can be aggravated by industrial policy measures that distort trade.
- Population aging: This can be a challenge for policymakers.
- Slowing productivity growth: This can be a challenge for policymakers.
- New technologies: New technologies like artificial intelligence can be a challenge for policymakers.
Other risks to growth and inflation:
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- Monetary policy: When the money supply grows too fast relative to the economy, prices rise.
- Supply chain disruptions: These can reduce supply and increase costs.
- Commodity price increases: These can increase the cost of production.
- Exchange rate fluctuations: When the national currency depreciates, the cost of imported goods increases.
- Government spending: High levels of government spending can increase demand and lead to higher prices.
Conclusion:
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- India’s economy remains robust, with solid growth and moderating inflation creating a favourable macroeconomic environment. Moody’s outlook highlights the interplay of solid fundamentals and policy measures in sustaining growth amid external and internal challenges.
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