India’s economy is projected to grow at a robust 7-7.2% in the current fiscal year (2024-25), driven by strong economic fundamentals and continuity in domestic policy reforms, according to Deloitte India’s latest Economic Outlook, released on Monday.
This August update highlights key initiatives from the Union Budget 2024-25 aimed at bolstering growth, including measures to improve agricultural productivity, create jobs, and address the financing challenges of micro, small, and medium enterprises (MSMEs). These initiatives are expected to support supply-side demand, help control inflation, and stimulate consumer spending, particularly in rural areas.
Deloitte India economist Rumki Majumdar emphasized that the Indian economy would see more robust growth in the second half of the fiscal year, following a period of uncertainty in the first six months. “Key contributing factors include the continuity in domestic policy reforms, reduced uncertainties in the US post-elections, and more synchronous global growth within a low-inflation regime,” Majumdar said.
Factors driving growth
Majumdar noted that the global economic environment, particularly improved liquidity conditions as Western central banks ease their monetary policy stance, would further enhance capital flows into India. This influx of capital is expected to drive higher private-sector investments, which will be crucial for sustaining growth.
The report also highlighted how India’s strong economic fundamentals would continue to support GDP growth between 7% and 7.2% in FY25. The combination of increased consumer spending and government initiatives addressing the urban-rural divide in consumption patterns is expected to play a significant role in this growth trajectory.
Government Initiatives supporting growth
The Union Budget for 2024-25 plays a key role in laying the foundation for sustained economic growth. Initiatives aimed at boosting agriculture productivity, job creation for youth, and supporting MSMEs are designed to strengthen the supply side of the economy and ease inflationary pressures. These measures are expected to stimulate demand, particularly in rural areas where consumer spending has historically lagged behind urban regions.
“The much-desirable policy pivot was evident in the Union Budget presented last month. Reducing the urban and rural spending gap in the coming years will ensure sustained consumer demand from a larger consumer base,” the report stated.
Addressing the disparity between urban and rural consumer spending, as well as inflation and employment concerns, could significantly enhance the purchasing power of rural consumers. By improving affordability, particularly in rural areas, the government aims to create a more balanced economic environment where both urban and rural regions contribute to economic growth.
In line with RBI’s projections
Deloitte’s growth forecast aligns closely with the Reserve Bank of India’s (RBI) projection of 7.2% growth for FY25. This is slightly higher than the Finance Ministry’s Economic Survey, which estimated GDP growth to be between 6.5-7% for the same period.
India had posted an impressive 8.2% GDP growth in the previous fiscal year (2023-24), following a sharp post-pandemic recovery. However, maintaining this momentum while managing inflation and global economic uncertainty remains a challenge.
Shifts in consumption patterns
Despite the strong growth projections, the report pointed out that private consumption spending in India has remained relatively modest over the past five years. The pandemic, high inflation (both global and domestic), and tightening financial conditions have all played a role in constraining consumption, particularly in rural areas.
However, Deloitte’s research shows that India is currently experiencing distinct and broad-based shifts in consumption patterns. There has been a notable increase in spending on non-food and discretionary items, reflecting changing lifestyles and preferences among both urban and rural consumers.
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“Demand for processed food has been among the highest in most states, suggesting a shift towards ready-to-eat options. Rapid urbanization, increasing women’s participation in the workforce, and enhanced marketing and availability are driving these changing dietary habits,” the report said.
Spending on discretionary durable goods, such as automobiles and electronics, has increased in both rural and urban areas, with rural India quickly catching up to urban spending patterns. This shift in consumption reflects a rising standard of living and changing aspirations among rural consumers, driven by increased incomes and better access to products.
Opportunities for businesses
Deloitte’s research highlights the opportunity for businesses to tap into a growing rural consumer base. If states with increasing incomes can achieve more equitable income distribution and higher rural spending, businesses could access a larger portion of the population in rural areas. This would create a sustainable demand for consumer goods and services, providing a larger and more stable market for businesses to operate in.
By focusing on reducing the urban-rural spending gap, both the government and businesses can work toward creating a more inclusive economy, where consumer demand is strong across all regions, ensuring long-term growth and stability.
In conclusion, Deloitte’s report underscores the potential for the Indian economy to achieve robust growth of 7-7.2% in the current fiscal year, backed by strong economic fundamentals, policy continuity, and evolving consumption trends. The outlook for the second half of the year remains particularly optimistic, as global and domestic uncertainties begin to ease, and India continues to strengthen its position as a key driver of global economic growth.
