Robust investment activity to boost growth but inflation a concern: FinMin
NEW DELHI : Robust investment activity and strong private consumption demand will drive the Indian economy in FY25 amid sluggish global growth, the finance ministry on Friday said in its economic review for February. However, challenges such as the impact of the ongoing crisis in the Red Sea and rising crude oil prices loom over the outlook. "Sustained increases in shipping costs due to disruption can drive up inflation.
The crisis is also reverberating in global food prices. Disruptions in grain shipments from the Russian Federation, Ukraine, and Europe pose risks to global food security," the ministry said. About 80% of India’s merchandise trade with Europe passes through the Red Sea, with key products such as crude oil, auto and auto ancillaries, chemicals, textiles, and iron & steel seen affected.
"The combined impact of higher freight costs, insurance premiums, and longer transit times could make imported goods significantly more expensive," it added. The finance ministry said strengthening private consumption demand is evident from indicators like burgeoning air passenger traffic and sale of passenger vehicles, digital payments, and improved consumer confidence. Meanwhile, the upscaling of enterprises and the emergence of sunrise sectors as catalysts for generating quality employment will mark the ascent of the manufacturing sector, it added.
"Increased demand for residential properties in tier-2 and tier-3 cities augers well for furthering construction activity," the finance ministry's latest monthly economic review said. "Non-farm employment has revived, improving the capacity to absorb the labour leaving agriculture," it added. Last December, the Reserve Bank of India (RBI) revised its growth forecast for the
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