The services sector, too, continues to perform well, with PMI services being in an expansionary zone in October and November 2024. The RBI's decision to lower the cash reserve ratio or CRR should help boost credit growth, which has slowed a little too much and quickly in FY25, says the ministry.

A major factor contributing to a positive growth forecast is rural demand, which remains resilient. This is highlighted by 23.2% and 9.8% growth in two & three-wheeler sales and domestic tractor sales, respectively, in October-November 2024. "The farm sector outlook is optimistic, generating hopes that food price pressures will decline gradually."

The ministry says the urban demand is picking up, with passenger vehicle sales registering YoY growth of 13.4% in October-November 2024 -- and domestic air passenger traffic witnessing robust growth. "Hiring and compensation practices in the corporate sector have also played their part in slowing urban consumption growth."

The RBI’s consumer confidence survey also points towards consumer optimism regarding the general economic situation, employment, and prices in the year ahead. On the inflation front, the RBI has projected CPI inflation at 4.8 per cent for FY25, with Q3 at 5.7 per cent and Q4 at 4.5 per cent.

Threats to India's growth

The ministry cautions that many major economies' global uncertainties and aggressive policies "threaten domestic growth". Looking into FY26, the ministry says newer uncertainties have emerged as global trade growth is looking more uncertain than before and elevated stock markets continue to pose a "big risk". The strength of the US dollar and a rethink on the path of policy rates in the United States have put emerging market currencies under pressure. "Sustaining growth will require a deeper commitment from all economic stakeholders to growth."

H1 Slowdown

Structural factors behind H1 slowdown; brighter outlook for H2: FinMin