India's gross domestic product (GDP) is expected to only grow by 6.4 percent in the financial year 2024-25, according to the Ministry of Statistics and Programme Implementation (MoSPI). This marks a four-year low and a fall from its 8.2 percent growth in the financial year 2024-25.
GDP is a widely recognised indicator of a country's economic performance over a specific period, focusing on the health of a nation's economy.
In its first advance estimates for 2024-25, the ministry projected a slower pace than the finance ministry’s and RBI's already tepid forecasts.
The estimated 6.4% growth is also the slowest since the pandemic year when India's gross domestic product (GDP) contracted 5.8% in 2020-21.
The latest estimates indicate India will continue to rank among the world’s fastest-growing major economies in FY25. But the slowing growth, coming after FY24’s 8.2% sprint, will likely have a bearing on the government’s upcoming budget for 2025-26.
The first advance estimates of GDP, typically revised over time as data coverage expands, serve as the foundation for the annual budget, which will be announced on 1 February.
The finance ministry recently said it expects the economy to grow at 6.5% in FY25, while the Reserve Bank of India estimated a 6.6% growth aided by rural consumption, government investment, and strong services exports. Economic growth has also been aided by robust agriculture, construction, and real estate sectors.
However, the GDP growth has struggled this year chiefly because of persistent inflation, weak urban consumption, disappointing private sector investments, and sluggish manufacturing activity.
RBI in its December monetary policy committee meeting significantly lowered its economic growth projection for FY25 to 6.6 % from its earlier estimate of 7.2%, after the GDP growth slowed to 5.4% in July-September, the slowest quarterly growth in nearly two years. Growth slowed on the back of lower government spending due to the national election that spanned from April to June, and a fall in consumption, especially in urban markets.
However, the slow second-quarter growth is expected to be an outlier rather than a trend, with the government expecting the economy to rebound in the second half of the fiscal year.
Private sector investment remains sluggish despite favourable conditions, though private consumption has performed relatively well over a weak base, matching overall GDP growth, economists said. In FY24, private consumption had grown at half the rate of GDP growth.
"Rural consumption, which constitutes about 60% of India’s total private consumption according to the Household Consumption Expenditure Survey 2023-24, will receive a boost from healthy kharif (monsoon crop) production and promising prospects for the rabi (winter) season. This is reflected in higher agricultural growth estimated for this fiscal,” said Dharmakirti Joshi, chief economist at Crisil.
However, the urban economy faces the twin challenges of high inflation and slowing credit growth, as reflected in the RBI data that shows moderated consumer confidence and decelerated retail credit growth, he said.
“We project the Indian economy to expand at 6.7% next fiscal in the base-case scenario, underpinned by public infrastructure spending, lower crude oil prices, normal monsoon, and monetary easing,” Joshi added. “That said, policymakers must remain vigilant in the face of escalating geopolitical and climate risks.”
Government Final Consumption Expenditure (GFCE) rose 2.5% in FY24. Interestingly, it had grown at 4.4% annually in the second quarter, swinging from a decline of 0.24% in the April-June period that was marked by disruptions in government spending due to the national election.
Paras Jasrai, senior economic analyst at India Ratings and Research, said: “The quarterly results of the FMCG companies also point to a sustained recovery in rural demand, which is favourable both for consumption as well as GDP growth.”
"However, the slack urban demand is persisting as indicated by commentaries from some FMCG companies and also the decline in imports to the tune of 1.3% in FY25 (against a 10.9% growth in FY24),” he added.
Meanwhile, India’s manufacturing sector, which represents approximately a sixth of the country’s GDP, is expected to grow at a more modest pace of 5.3% year-on-year in FY25, down from 9.9% in FY24, according to the latest MoSPI data.
Construction output is forecasted to expand by 8.6% in FY25, a slight decline from last year’s growth of 9.9%.
However, growth in agricultural output, contributing to about a fifth of GDP, is anticipated to rise significantly to 3.8% in the current fiscal year, a notable improvement from FY24’s 1.4% growth, owing to good rainfall received in various parts of the country.
(By arrangement with livemint.com)