Chennai: On the back of government capex, healthy corporate performance and banking sector banking sheets, India Ratings expects GDP to grow by 6.5 per cent in next fiscal. However, broad-basing of consumption demand, especially in the lower 50 per cent income bracket remains a challenge. According to Ind-Ra, the GDP is expected to grow by 6.5 per cent in FY25 after registering 7.3 per cent growth in FY24. Factors that would support the growth includes economic recovery due to sustained government capex, healthy corporate performance, banking sector’s healthy balance sheets, softness in global commodity prices, and prospect of a new private corporate capex cycle. However, there are challenges in the demand front as it is largely driven by government capex. The spill-over effect of government capex is visible in industrial segments like capital and infrastructure and construction goods. However, private consumption is largely skewed in favour of goods and services consumed by the upper 50 per cent in the income bracket. As a result, the consumer durables segment of Index of Industrial Production grew at just 1 per cent during nine months of FY24. Private consumption is also linked to wage growth, which has been muted over the past several years. In fact, the average real wage growth during FY21-FY22 was only 3.1 per cent. Rising wholesale price inflation affecting corporate margins is also a worry. WPI after remaining in deflation from April to October 2023 has turned into inflation since November 2023. A rise in input cost, if not adequately passed into output prices, will reduce corporate margins. Given that consumption is not broad-based, producers will find it difficult to pass on the higher input cost to output prices. Further, exports are likely to face global headwinds even in FY25 as they are hit by the growth slowdown in advanced economies and rising trade distortions and geopolitical fragmentation. India’s goods and services exports during 10MFY24 recorded a negative growth rate of 0.14 per cent. Private sector’s greenfield capex barring few sectors has remained down and out now for several years. However, select data are pointing towards the likelihood of a new private corporate capex cycle. On the supply side, high frequency indicators are showing that the services sector recovery is on course. Further, the agricultural sector may grow better at 3 per cent in FY25 if the country has a normal monsoon rainfall.
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