Inflation, Monetary Policy, and GDP Growth: The Impact of Government Spending and Manufacturing Slump
Inflation's Grip on Economic Growth
Inflation is increasingly spotlighted as economic growth faces headwinds from a manufacturing slump and reduced government spending during election periods. Slowing urban consumption and moderating expenditures have muddied the outlook for Q1 FY25, with growth anticipated at a median of 6.85% per ET poll, a slip from earlier performance figures.
Weakness in Key Sectors
- Manufacturing activity has not rebounded as many had hoped.
- Government expenditure in Q1 fell to Rs 9.69 lakh crore, down from the previous year.
- Rural demand, however, shows resilience with growth in two-wheeler and tractor sales.
Future Projections
The International Monetary Fund (IMF) projects a recovery, expecting India's economy to grow by 7% in FY25, though ongoing risks like adverse weather and geopolitical tensions could derail this trend. Recent consumer confidence data and a decline in passenger vehicle sales raise further concerns about overall consumption demand.
Conclusion
With the services sector poised for growth, there remains cautious optimism as stakeholders anticipate data on GDP growth on August 30. The continuation of monetary policy adjustments by the RBI and responses to inflationary pressures will be crucial in shaping the economic landscape moving forward.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.