India’s GDP growth to slow to 4-year low of 6.4% in FY25

India’s gross domestic product (GDP) is expected to grow at 6.4 percent in the financial year 2024-25, marking the lowest in four years and a substantial decline from 8.2 percent growth recorded in the financial year 2023-24, stated by the National Statistics Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI), Government of India. Releasing its first advanced estimate for the financial year 2024-25, the projected GDP growth rate works out to 6.6 percent projected by the Reserve Bank of India (RBI) in its estimate recently.

The NSO data estimated India’s nominal GDP growth rate of 9.7 percent in FY 2024-25 (FY25 or April 2024 - March 2025) over the growth rate of 9.6 percent in FY 2023-24. The country’s real gross value added (GVA) has grown by 6.4 percent in FY 2024-25 over the growth rate of 7.2 percent in FY 2023-24. Nominal GVA has shown a growth rate of 9.3 percent in FY 2024-25 as compared to the growth rate of 8.5 percent in FY 2023-24.

Madan Sabnavis, Chief Economist at Bank of Baroda, stated, “India’s GDP growth for FY25 has been estimated at 6.4 percent against an increase of 8.2 percent in FY24 on a year-on-year (yoy) basis. This moderation is led by expectation of slower pace of growth in investment demand at 6.4 percent against a growth of 9 percent in FY24. Moreover, contraction in import (-1.3 percent versus 10.9 percent in FY24) growth is likely given the weakness in global economy.”

However, on the bright side both private and government consumption is expected to register strong growth of 7.3 percent (4 percent in FY24) and 4.1 percent (2.5 percent in FY24) respectively in FY25. Furthermore, in a positive surprise, the export growth is likely to register a strong growth of 5.9 percent against a growth of 2.6 percent in FY24.

Rajani Sinha, Chief Economist, Care Ratings Ltd, said, “India's GDP growth for FY25, as per the First Advanced Estimate, has been reported at 6.4 percent, broadly in line with our expectations. As expected, growth is estimated to pick up in the second half of the year to 7 percent, surpassing the 6 percent growth recorded in April-September 2024. The concerning aspect of the data is the moderation in investment growth to 6.4 percent in FY25 from 9 percent in the previous year. Government Investment had moderated in the April-September 2024 period due to election related uncertainties but was expected to pick up in the second half.”

However, the data is not showing a pick up, with investment growth since October 2024 which is estimated to remain around the same as the April-September 2024 period. This means private investment is also not picking up meaningfully. The positive aspect is that Private consumption is estimated to show a strong growth of 7.3 percent in FY25 compared to a feeble growth of 4 percent in FY24. Consumption growth is estimated to accelerate in the October 2024 - March 2025 period compared to the first half. Healthy agri growth and likely moderation in food inflation should help boost consumption in the months to come. Sustained consumption growth will also help pull in private investment.

GVA moderates
India’s GVA growth is also estimated lower at 6.4 percent (previously 7.2 percent). Softer growth is expected across the industry sector in FY25 with manufacturing and mining sector to grow at 5.3 percent and 2.9 percent in FY25, much slower than last year. Agriculture sector is expected to record robust growth supported by recovery in rural demand and improvement in rabi sowing.

Given the ongoing geopolitical conflict and threats of tariff war, the global headwinds signal weakness in global economy. On the other hand, India’s economy is expected to perform much better in October 2024-March 2025. The attention will now shift towards Union Budget and corporate performance for October-December 2024 and January-March 2025. For FY26, Bank of Baroda expects the nominal GDP growth at 10.5 percent and real GDP growth at 6.8 percent.

Outlook
A range of economic and strategic risk prevails post the imposition of the tariff polices by the incoming US President Mr Trump. This could be far reaching impact on global trade, with any retaliatory measures pushing towards the possibility of a tariff war. This remains as a global risk and will adversely impact the global economies. Indian economy remains resilient on the back of the strong festive demand and steady improvement in economic activity. The same has already been reflected by some of the high frequency indicators witnessing an uptick in Q3, these include air passenger traffic, services PMI and a jump in GST collections. Additionally, higher rabi sowing bodes well for agriculture growth.

However, some downside risk to these estimations emerge due to global headwinds, especially the threat of tariff war. Investment and Consumption continues to remain critical factors supporting the growth in the coming months. Focus would also move towards the Union Budget, corporate performance in Q3 and Q4 and RBI’s rate decision, we expect the rate cut action in the next meeting scheduled in Feb’25. For FY26.

Sinha added, “Going forward, for FY26, we expect real GDP growth at 6.7 percent. The most important monitorable would be a more broad-based pick up in consumption demand, especially amid reports of slowing urban consumption. The other critical aspect would be a meaningful pickup in private investment in the coming quarters. Additionally, monitoring headwinds to growth emerging from external sources like trade policy uncertainty, volatility in global markets, and geopolitical risks would be crucial.”


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com