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Despite cyclical downturn in India, govt unlikely to unleash any fiscal stimulus measures: Report

By ANI | Updated: January 14, 2025 08:50 IST

New Delhi [India], January 14 : India is currently experiencing a cyclical economic downturn, with gross domestic product (GDP) ...

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New Delhi [India], January 14 : India is currently experiencing a cyclical economic downturn, with gross domestic product (GDP) growth projected at 6.1 per cent for both FY25 and FY26, according to a report by Nirmal Bang.

The report highlighted that while rural growth remains fragile, it is showing signs of improvement compared to urban areas.

It said "India is in the midst of a cyclical downturn with base case GDP growth in FY26 at 6.1 per cent. Rural growth remains tenuous albeit better that urban".

Despite some positive developments in private capital expenditure (capex), the report noted that the recovery is unlikely to have a significant impact on overall growth.

The report also stated that the government is expected to maintain fiscal discipline, with a fiscal deficit target of 4.5 per cent of GDP by FY26. This implies a moderate capex growth of around 9-10 per cent. Any fiscal stimulus measures from the government are unlikely unless there is evidence of a prolonged economic slowdown.

"Despite the cyclical downturn in India, the government is unlikely to unleash any fiscal stimulus measures unless it sees signs of a protracted slowdown" said the report.

The report also noted that India's monetary policy stance has also been cautious, with no rate cuts initiated yet, lagging behind developed markets.

The report suggested that the cyclical downturn in the economy has not prompted the Reserve Bank of India (RBI) to ease monetary policy significantly.

On the positive side, the report points to some encouraging signs of recovery in private capex. This improvement is driven by initiatives such as the Production Linked Incentive (PLI) scheme, a push for renewable energy, and a turnaround in the real estate sector.

However, these factors alone are insufficient to boost the overall growth trajectory in a meaningful way.

Interestingly, India's market capitalization-to-GDP ratio has reached an all-time high, standing at approximately 135 per cent. This is significantly higher than the 10-year average of around 90 per cent and is second only to the United States globally.

In conclusion, while India faces economic challenges in the short term, structural reforms and sectoral recoveries offer a glimmer of hope. However, sustained efforts will be required to overcome the cyclical downturn and achieve higher growth in the coming years.

Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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