DC Edit | Positive signals on economy

In the last couple of days, three different types of forecasts have come in which reveal that India’s economy would perform better in the current financial year that ends in March 2025. The first and the most important forecast was from the Indian meteorological department (IMD). It expects the country to receive above-normal rainfall during the rainy season which begins when the monsoon sets in over Kerala on June 1. As a large majority of the Indian population still depends on agriculture, normal rainfall is crucial from both economical and social perspectives in the country.

The second forecast was from the International Monetary Fund (IMF), which suggests that the Indian economy would grow faster in fiscal 2025. Predicting a strong growth in domestic demand and growing working population in the country, IMF revised its growth forecast for India upwards from the previous 6.5 per cent to 6.8 per cent and said that India will continue to be the world’s fastest growing major economy.

The third forecast was deduced from the meetings of the US Federal Reserve in March, where its members expressed concern over stubborn inflation and hinted at going slow on slashing its interest rate. While it does not concern India directly, it has an indirect impact on it. It is believed that higher inflation eats into the value of currency. So a higher inflation would depreciate the US dollar against other currencies including the rupee. But to keep their currencies competitive, other countries would let their currencies depreciate further. So if India is forced to take this route and let the rupee lose its value further, it will lead to an increase in the price of all imported goods, including fuel and gold. If the US wants to fight its inflation, it is good for India. A cut in the US interest rate, on the other hand, would have brought more hot money into already super-hot Indian stock markets and flush Indian banks with hoards of deposits, creating a problem of plenty, which is best avoided as the Indian economy is stable with decent economic growth and manageable inflation.