India's economy poised for robust growth ahead of annual budget

By Manoj Kumar

NEW DELHI (Reuters) - India's economy is expanding at the fastest rate among major emerging economies, and tax receipts are higher, factors that could prompt Finance Minister Nirmala Sitharaman to increase spending in the new 2024/25 budget that will be presented to parliament on July 23.

The budget is expected to see an increase in spending on infrastructure and welfare programmes such as rural housing, following bumper dividend payouts from the central bank and increased tax revenue. However, Sitharaman is likely to adhere to the interim budget's fiscal deficit targets.

Here are some facts about India's economy:

ECONOMIC GROWTH

The Reserve Bank of India (RBI) has upgraded its growth forecast for the fiscal year 2024/25 to 7.2%, up from 7%, driven by a resurgence in private consumption, robust investment, and a rebound in exports.

Similarly, the International Monetary Fund has revised India's growth forecast to 7% for 2024/25 from 6.8%, aligning with recent updates from rating agencies and private economists.

S&P expects India's economy will grow at nearly 7% annually over the next three years.

INFLATION

Retail inflation in India has eased to around 5% from over 7% in 2022. Still, food inflation remains persistently high at around 9%, impacting rural and low-income urban households. This persistent inflation, coupled with minimal growth in real wages, is dampening expectations for early interest rate cuts by the RBI.

FISCAL DEFICIT

India's federal fiscal deficit, which exceeded 9% of GDP during the pandemic, is projected to remain around 5% for the current fiscal year.

However, the combined federal and state fiscal deficits are estimated at 7.9% of GDP, reflecting a large debt stock and high-interest burden that constrain the capacity for increased state spending.

HIGH UNEMPLOYMENT

Despite a rebound in employment in manufacturing and services, high unemployment among the educated youth remains a challenge for Asia's third-largest economy.

The unemployment rate for urban youth aged 15-29 was 17% in the first quarter of March, with private agencies suggesting that the actual rate may be higher.

India's overall unemployment rate has remained much higher over the decades than China, according to International Labour Organisation estimates, with millions remaining stuck in low-paying agriculture and informal sector jobs.

INTERNATIONAL TRADE

India's goods and services exports are on an upward trajectory, despite concerns over a global slowdown and geopolitical risks.

Exports are projected to reach $800 billion in the current fiscal year ending March 2025, up from $778.2 billion in the previous fiscal year.

Rising services exports and private transfer receipts have helped India's current account balance, which is showing a $5.7 billion surplus for the first time in 10 quarters in three months through March.

(Reporting by Manoj Kumar; editing by Miral Fahmy)