India's economy is forecast to grow at a rate of 7% in the upcoming fiscal year, according to the latest report by the finance ministry.

This follows on from a projected 7.3% growth in the current fiscal year, the third straight year of growth surpassing 7%.

The upbeat forecast is attributed to several factors, including a robust performance in Q2 and positive growth projections for FY24, Business Today reports.

Several global agencies have subsequently upwardly revised their growth projections for India, underscoring the economy's resilience in the face of geopolitical challenges.

Furthermore, the Interim Union Budget FY25's measures are set to play a key role in supporting the country's future growth.

The finance ministry's report also forecasts healthy Rabi harvests, ongoing profitability within the manufacturing sector and service resilience to boost economic activity in FY25.

Household consumption is forecast to improve, along with business sentiment, bank and corporate balance sheets.

That said, the report also cautions of the likely challenges stemming from geopolitical tensions, international financial market volatility and geoeconomic fragmentation. Demand for Indian merchandise exports has declined as a result of the global slowdown, especially among India's main trading partners.

There has also been a fall in the overall value of imports due to a drop in international commodity prices, which spiked following Russia's invasion of Ukraine. This has resulted in India's merchandise trade deficit narrowing in the first 10 months of FY24, the ministry stated.

"Downside risks to trade include a spike in new commodity prices from geopolitical shocks, including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation in the developed world, which could extend tight monetary conditions," it added.

Moreover, in terms of inflation, the ministry said pressure had eased in January due to a decline in food and core inflation. The recent measures unveiled by the government to control food prices will likely further reduce inflation, The Indian Express reports.