Indian Prime Minister Narendra Modi may seek to arrest slowing economic growth in the world's fifth-largest economy and prepare for an uncertain year of global trade when his government presents the federal budget on Feb. 1.
Economists expect policy changes aimed at strengthening consumption and tariff cuts to encourage local manufacturing as ways to boost growth.
Below are some of the key economic indicators that will be considered by Finance Minister Nirmala Sitharaman while presenting the budget.
SLOWING GROWTH
A weaker manufacturing sector and slower corporate investments are seen dragging India's growth to 6.4% in 2024/25, the slowest pace in four years.
Private investment is seen rising by 6.4% in 2024/25, lower than 9% growth in the previous year, while consumption, which accounts for nearly 58% of GDP, is estimated to expand by 7.3% year-on-year compared to 4% in the previous fiscal year.
Weak growth in wages has impacted discretionary spending of urban middle-class Indians, according to large consumer companies on their quarterly earnings calls, even as rural demand has improved due to a strong monsoon in 2024.
The growth slowdown amid global volatility has wiped out a recent stock market rally.
INFLATION
India's retail inflation in December eased to a four-month low of 5.2%, raising hopes the country's central bank would start cutting interest rates in February.
But inflation in food items, which account for nearly half of the consumption basket, continued to remain high at 8.39% in December, with vegetable prices rising at an eye-watering pace of 26.56%.
UNEMPLOYMENT
Modi continues to face criticism for not creating enough jobs in the world's most populous country. Government estimates of India's unemployment rate and those by private forecasters vary widely.
FISCAL DEFICIT
Modi's administration is looking to contain its fiscal gap under 4.9% for 2024-25 as initially targeted, and aims to bring it down below 4.5% in the next financial year. The country's fiscal gap had ballooned to 9.3% in 2020-21 during the pandemic.
From 2026-27, the country will move away from targeting the fiscal deficit and prioritise lowering India's debt-to-GDP ratio.
The general debt-to-GDP ratio, that includes state government debt, is estimated at 82.6% in 2024-25, according to the IMF.
A roadmap to reduce the ratio will likely be released alongside the budget.
FOREIGN DIRECT INVESTMENT (FDI) FLOWS
Net foreign direct investment between April and November 2024 in the current fiscal year stood at $479 million, according to data from the Reserve Bank of India (RBI), a sharp fall compared with a net inflow of $8.5 billion a year earlier.
Repatriation of funds and outbound investments have weighed on net inflows, the RBI said in its January economic bulletin.
Even though India is trying to attract foreign investment and supply chains moving out of China, FDI inflows have been weak for a while now.
The prospects for financial flows are risk-laden, with the outlook for FDI still subdued and with portfolio flows displaying 'home bias' and high volatility, the RBI said.
TRADE, CURRENT ACCOUNT DEFICIT
India's merchandise trade deficit in April-December prose 11% year-on-year to $210.77 billion, due to strong imports and weaker goods exports.
But the current account deficit in July-September narrowed marginally from a year earlier, helped by a rise in services exports that have outperformed goods shipmemts.
The current account deficit stood at $11.2 billion, or 1.2% of GDP, in the quarter, compared with a deficit of $11.3 billion or 1.3% of GDP in the same quarter a year ago.
