New Delhi, Jan 10 India will continue to stand out as the fastest-growing major economy globally in the coming years with growth momentum to improve in 2025 as government spending is picking up again and consumer sentiment stays resilient, according to a Franklin Templeton report.
The structural growth outlook for India’s economy remains very much intact, with various signs indicating that the slowdown in 2024 will be transitory, the report said.
"All in all, we believe India can comfortably maintain its position as the world's fastest-growing major economy, with GDP growth of around 6.5 per cent until at least 2029. Income growth and the rise of the middle class will likely continue in tandem. We expect India's wealthy and middle-class populations to expand by 400 million people. In particular, the number of people in India's wealthiest class could grow three-fold," the report said.
"We also stay positive on India’s vibrant digital economy and its beneficiaries, as well as the structural growth potential in the healthcare sector," it said.
India's economic growth slowed in 2024, with gross domestic product (GDP) year-on-year growth of just 5.4 per cent in the fiscal second quarter (July-September), the lowest in seven quarters. As a result, growth for the full fiscal year ending March 2025 will likely be 6.6 per cent, moderating from 8.2 per cent from a year earlier, based on Reserve Bank of India (RBI) forecasts.
The report said the slowdown is temporary, with deferred government spending in a general election year the primary cause. Heavy monsoon rainfall during the summer also proved disruptive to economic activities. Several high-frequency data points are showing improving underlying conditions for a recovery in growth.
Government spending has been picking up since September, suggesting that it is gradually ramping up its spending on priority initiatives, particularly infrastructure and rural development. Importantly, a pickup in government spending and activities should synergise capital expenditure (capex) growth in the private sector. For instance, faster approvals for construction and engineering projects will bolster company confidence to invest and hire more actively.
Private consumption is a major driver for India’s economy and it is showing stronger growth momentum in the second half of this year. Consumer sentiment also remains resilient and year-ahead optimism has held firm, indicating a post-election recovery. Consumption growth should find further support if inflation cools in 2025. The Consumer Price Index (CPI) inflation rate will moderate from 5.7 per cent in the October-December quarter of 2024 to 4 per cent in the July-September quarter of 2025, based on RBI forecasts, the report said.
The resumption of government spending, private sector capex growth and the resilience of domestic consumption, among other factors, may help India's economy return to normalcy in 2025. As growth accelerates again, the stage is set for earnings recovery, the report added.
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