Economists' greatest concerns have been validated by the first advance estimates of GDP (Gross Domestic Product) growth for FY25, which show that growth would be significantly lower than the Reserve bank of India's (RBI) projected 7% increase. According to forecasts released by the Union Ministry of Statistics and Program Implementation (MoSPI), GDP would only increase by 6.4% this year.
 
Additionally, this is significantly less than the preliminary projections for the prior year (FY24), when GDP growth was 8.2%. The growth fall has been caused by a significant slowdown in the second quarter, less fiscal stimulus, rising interest rates, and tighter lending standards.

For the narendra modi government, which was criticized for failing to sufficiently address unemployment during the previous term, the slowdown is terrible news. Millions of the nation's educated and talented young people cannot be guaranteed adequate work unless development is rapid and maintained over a number of years.
 
Many anticipate that the government will unveil policies in the Union Budget on february 1 to increase growth and jobs in order to address this and the february 5 delhi assembly elections. By 2027, India's economy, which is now the fifth biggest and fastest-growing in the world, is expected to overtake china and the united states as the third largest. Slow growth, however, means it will take the nation longer to reach that goal.
 
Many people might not be surprised by the full-year GDP forecasts. There were enough signs in the second quarter of current fiscal year. India's second-quarter GDP growth was 5.4%, much less than the 8.1% growth in the second quarter of the previous fiscal year and down from 6.7% in the first quarter. Actually, it was the slowest growth in over two years. Experts at the time warned that this would cause India's full-year growth to fall short of projections, leading many agencies to update their growth projections.
 
According to Dharmakirti Joshi, chief economist at Crisil, "it is unlikely that the decline in government capital expenditure—a key driver of post-pandemic recovery—during the second quarter will be compensated for in the rest of the fiscal year." Despite the favorable circumstances, private sector investment is still slow. Therefore, it should come as no surprise that investment growth dropped to 6.4% this fiscal year from 9% the year before.
 
High inflation and sluggish credit growth are two issues facing the urban economy. According to recent RBI statistics, urban consumer confidence has decreased. Retail credit growth, which is more prevalent in metropolitan economies, has slowed.
 
Positively, private consumption has matched the expansion of the GDP overall and has done rather well over a poor foundation. Private consumption increased at half the GDP growth rate during the most recent fiscal year.
 
Healthy kharif output and bright expectations for the rabi season will improve rural spending, which accounts for almost 60% of India's total private consumption, according to the Household spending Expenditure survey 2023-24. Joshi claims that the stronger agricultural growth predicted for this fiscal year reflects this.
 
Furthermore, discretionary expenditure will be supported by the expected drop in food inflation, especially for low-income households whose consumption basket contains a larger percentage of food.
 
In the base-case scenario, we predict that the indian economy will grow by 6.7% in the upcoming fiscal year, supported by monetary easing, a regular monsoon, reduced crude oil prices, and public infrastructure expenditure. Nevertheless, Joshi asserts that in light of growing geopolitical and climate concerns, governments need to continue to exercise caution.
 
Softer growth is anticipated throughout the industrial sector in FY25, according to a research paper from the bank of Baroda. Manufacturing and mining are forecast to expand at 5.3% and 2.9%, respectively, in FY25, which is much slower than last year. Strong growth in agriculture is anticipated, bolstered by improved rabi seeding and a resurgence in rural demand. "The global headwinds indicate weakness in the global economy, especially in light of the ongoing geopolitical conflict and the threat of a tariff war." However, in the second half of FY25, India's economy is anticipated to do significantly better, the note stated.
 
The focus will now turn to the Union Budget and the third and fourth quarter business performance. The memo went on to say, "We anticipate nominal GDP growth of 10.5% and real GDP growth of 6.8% for FY26."
 
In the meanwhile, Care Ratings projects 6.7% GDP growth in FY26 due to a more widespread increase in demand for consumption and private investment in the upcoming quarters.
 
 
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G GOWTHAM

09/01/2025 08:38 AM