According to CRISIL, the key contributor to this trend will be capital.
This is a result of the investment-driven strategy of the government when the private sector was shy of making investments.
The government increased capital expenditure significantly to support building expenditure and providing interest-free loans to states to bolster their own investment efforts, the report said.
CRISIL said that after a robust 7.3 per cent growth this fiscal, there will be moderation to 6.4 per cent in the next financial year.
There is also a need to monitor the impact of the escalation of the Middle East conflict on energy and logistics costs, it said. In India, the inflation level of 5.7 per cent in December 2023 was driven solely by volatile vegetable prices and foodgrain inflation, according to the report. This will keep RBI cautious on the rate front as it eyes the four per cent inflation target, CRISIL said.
The continued softening of core inflation and deflation in fuel prices gives us hope, but the persistent high price levels of the food items, which has substantial weight in consumer price index (CPI), keep the risks of its transmission to non-food components, the report said.
CRISIL said the Federal Reserve of the US is expected to cut rates this year. The strong labour market data and higher-than-expected inflation have once more cast doubts on the timing and the extent of rate cuts expected to begin this year.
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