Current Affairs - Economy

Morgan Stanley has downgraded India’s FY25 growth forecast from 7% to 6.7%, citing weaker-than-expected performance in Q2. However, a recovery is anticipated in the second half of FY25, supported by improved agricultural output and increased government spending. Additional factors such as easing inflation and potential monetary policy adjustments by the Reserve Bank of India in April 2025 are expected to contribute to economic stabilization. Despite the short-term challenges, the firm remains optimistic about growth prospects in the latter part of FY25.

India has taken the lead in the G20 with an impressive 7% GDP growth rate projected for 2024, surpassing other major economies. This growth rate is significantly higher than Indonesia's 5% and China's 4.8%. The G20 represents a substantial portion of the global economy, accounting for 88% of global GDP, 78% of international trade, and nearly three-quarters of the world's population. India's strong growth prospects are driven by domestic consumption demand and steadily improving investment demand.

India's Wholesale Price Index (WPI)-based inflation surged to a four-month high of 2.36% in October, driven primarily by a sharp increase in food prices. This rise was led by substantial increases in vegetable prices (up 63.04%) and potatoes (78.73%). The WPI inflation rate accelerated from 1.84% in September, aligning with the recent Consumer Price Index (CPI) data that reported a 14-month high in retail inflation at 6.2%. The inflation rate in manufactured products also saw a slight acceleration to 1.5% in October. This significant shift in inflation rates warrants close monitoring of economic trends and policy adjustments.

India's smartphone market has achieved significant growth, emerging as the second-largest globally by unit volume in Q3 2024. With a 15.5% share of global smartphone shipments, India trails only China's 22% market share. The country's smartphone market value also rose to 12.3%, driven by early festive sales, a 3% increase in shipments, and a 12% growth in market value. The average selling price of smartphones in India reached $294, indicating a shift toward premium devices, with brands like Samsung and Apple dominating the premium segment. India's large user base and growing demand for high-end devices position the country for continued growth in the smartphone market.

The Goods and Services Tax (GST) Compensation Cess is set to expire in March 2026, as decided by the GST Council. This cess was introduced to compensate states for revenue loss due to the implementation of GST and was extended till March 2026 to repay a ₹2.69 lakh crore loan taken during the COVID-19 pandemic. A Group of Ministers (GoM) has been formed to determine the taxation of luxury, sin, and demerit goods after the cess ends. The expiration of the cess will have implications for taxation and revenue distribution among states.