High growth and moderating inflation constitute a desirable combination for any economic planner. If the growth is sweetened by significant employment generation, then the combination can turn into a dream one. With mixed performance in the employment generation front, the year 2024 has not exactly been a dream one for India, but with growth rates trotting ahead, India will be well-placed to move ahead in its quest to have the third highest GDP by the year 2030.
The Indian GDP is projected to grow around 7% in FY25. Among the factors helping this rate of growth is moderately strong household spending, robust manufacturing and significant public investment, especially in infrastructure. The labour intensive manufacturing and construction sectors have shown significant growth in 2024. According to reports, the manufacturing sector has expanded by close to 10% this year.
Inflation and interest rates
The year 2024 has been marked by a remarkable duel – that between inflation and interest rates. While the industry clamoured for a reduction in interest rates, Reserve Bank of India under the watchful eyes of governor Shaktikanta Das, refuse to give in to the demand. His logic: retail inflation was far away from the RBI’s long-term goal of containing it around 4%, and therefore, reducing the key interest rate at this stage would further stock inflation, which would impact a huge number of people and, eventually, would end up hurting consumption. To be sure, the RBI governor had the comfort of a high growth rate of the economy and the elbowroom to wait for an opportune moment.
Tackling inflation
If there is any one thing that the RBI has battled throughout the year, it has been inflation. In the first week of December, the central bank even raised the forecast of retail inflation for FY25 to 4.8%. The earlier prediction was 4.5%. Of all the niggling points, food inflation was the most irritating. While, in 2023, El Nino conditions were substantially responsible for high food inflation – higher vegetable and dal prices – in 2024, erratic rains were the bigger villain. In some of the months such as October, May or April this year, food inflation soared to 6.21%, 8.69%, 8.7% respectively. In fact, the RBI governor kept harping regularly on how food inflation stood in their way of considering a reduction in key interest rates.
Employment generation
The performance in employment generation was mixed. According to CMIE, the unemployment rate in January 2024 was recorded at 6.8%, which was a 16-month low. However, since then unemployment has hovered between 7.6% and 9.2%. Those who have clamoured for a rate cut have been arguing that trimming the key Repo Rate – it has remained unchanged at 6.5% since February 2023 – have argued that a rate cut would have brought down EMIs for retail borrowers and boosted consumption across the board. For India Inc, too, it would have meant cheaper funds. The combination would have raised the growth of GDP, they said. But with a health growth rate, RBI could wait for the inflation rate to come down.
The battle for the rupee
Another prominent battle in the Indian economy in 2024, has been the effort of the RBI to protect the value of the Indian rupee. On December 20, the Indian rupee closed at a low of Rs 85.02. It was reported in February 2024 that the rupee was trading around 82.95 against the dollar and “showing signs of a structural uptrend”. Experts said that narrowing current account deficit, robust forex reserves were among the factors that provided the tailwinds. However, since then the rupee has been facing downward pressure which increased when FIIs liquidated a lot of their investments on Indian stocks. The dollar index is up and several analysts believe that the USD will appreciate against major currencies in 2025. While that will definitely keep the RBI bosses busy, its forex kitty of $652.869 bn (week ending December 13, 20204) can come in handy for interventions.
With robust domestic demand and decent growth in exports in 2024, the Indian economy continued its run with highest GDP growth rate among the major economies of the world. Economy Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
