India's GDP Growth Projection for FY 2024-25

1. Projected GDP Growth for FY 2024-25: India’s real GDP is estimated to grow at 6.4% in FY 2024-25, which represents a 4-year low.
2. This is based on the first advance estimates released by the National Statistics Office (NSO) on January 2, 2025.
   1. The Statistics Wing re-designated as National Statistics Office (NSO) consists of the Central Statistics Office (CSO) and National Sample Survey Office (NSSO).
   2. CSO is an attached Office and NSSO is a subordinate Office under the control of the Ministry of S&PI.

3. Comparison with Earlier Projections:

   1. The Reserve Bank of India (RBI) had projected GDP growth at 6.6%.
   2. The Government’s Economic Survey 2023-24 had estimated growth in the range of 6.5% to 7%.
4. Base Year for GDP Calculation: India calculates GDP using 2011-12 as the base year.

First Advance Estimates and Their Significance

1. The first advance estimates of GDP are typically based on data from the first seven to eight months of the ongoing financial year (FY25) and serve as an early indicator of economic trends.
2. These estimates help the Union Ministry of Finance and other departments to frame the Union Budget for the next financial year.
3. The 2025-26 Union Budget will be presented on February 1, 2025.
4. The estimates predict that economic growth has slowed in the first half (H1) of FY25, with the second half (H2) expected to show an improvement.

Growth Dynamics in FY2024-25:

1. Sectoral Performance:

   1. The primary and secondary sectors of the economy are experiencing a slowdown, with notable weakness in manufacturing and investment.
   2. However, the services sector has remained relatively resilient.

2. Industrial and Investment Weakness:

   1. Manufacturing is one of the major contributors to the slowdown in GDP growth, with its Gross Value Added (GVA) growth expected to decline sharply from 9.9% in FY24 to 5.3% in FY25.
   2. Investment growth, particularly in the private sector, remains subdued. Gross Fixed Capital Formation (GFCF) is expected to grow at 6.4%, down from 9.0% in FY24.
   3. Mining and Quarrying: This sector is expected to grow at 2.9% in FY25, down from 7.1% in FY24.

Sectoral Breakdown:

1. Agriculture and Allied Sectors:

   1. Growth: The agriculture and allied sector is expected to see a substantial increase in growth, projected at 3.8% in FY25, compared to 1.4% in FY24.
   2. This growth is driven by strong crop output, particularly in rural areas, which will support private consumption.

2. Manufacturing:

   1. Manufacturing GVA is estimated to grow at 5.3%, a significant slowdown from 9.9% in FY24. This reflects the ongoing industrial weakness.

3. Services Sector:

   1. The services sector is projected to grow at 7.2% in FY25, slightly lower than the 7.6% growth recorded in FY24.
   2. Key sub-sectors:
      • Public Administration, Defence & Other Services: Expected growth of 9.1%, up from 7.8% in FY24.
      • Trade, Hotels, Transport, Communication & Broadcasting: Projected to grow at 5.8%, down from 6.4% in FY24.
      • Financial, Real Estate & Professional Services: Expected growth of 7.3%, down from 8.4% in FY24.

4. Construction:

   1. The construction sector is forecasted to grow at 8.6% in FY25, compared to 9.9% in FY24.
   2. This reflects a moderation in growth due to weaker demand for housing and infrastructure.

5. Utilities (Electricity, Gas, Water Supply):

   1. Expected growth of 6.8%, slightly lower than 7.5% in FY24.

Key Drivers of Economic Performance in FY25:

1. Private Consumption:

   1. Private Final Consumption Expenditure (PFCE), a key indicator of consumption demand, is expected to grow at 7.3% in FY25, up from 4.0% in FY24.
   2. This increase is primarily driven by strong rural demand, backed by good agricultural output.

2. Investment:

   1. Gross Fixed Capital Formation (GFCF), which reflects investment activity, is expected to grow at 6.4%, a significant slowdown from 9.0% in FY24.
   2. This reflects weaker investment growth in both the private sector and government capex.
   3. Private sector capex remains a challenge, and public sector investments have also not significantly picked up.

3. Government Spending:

   1. Government Final Consumption Expenditure (GFCE) is projected to grow at 4.1%, an improvement from 2.5% in FY24.
   2. The government’s expenditure support will provide a cushion to overall growth, though it remains below private consumption growth.

Growth Forecast by Half-Year (H1 vs. H2)

1. H1 (April-September 2024): The economy grew at 6.0% during the first half of FY25.
2. H2 (October-March 2025): The economy is expected to pick up pace, with growth forecasted at 6.7% in the second half of the financial year, driven by private consumption and government expenditure.

Monetary and Fiscal Policy Impact

1. Monetary Tightening:

   1. The Reserve Bank of India (RBI) has maintained a stance of monetary tightening throughout FY25 to combat inflation, leading to higher interest rates.
   2. This has contributed to the slowdown in private investment and capital formation.

2. Fiscal Tightening:

   1. The government’s focus on fiscal discipline continues to affect the capital expenditure (capex), as budgetary allocations for infrastructure projects have remained moderate.
   2. However, higher-than-expected tax collections are helping to partially offset this.

Other Key Economic Indicators

1. Nominal GDP:

   1. Nominal GDP, which factors in inflation, is projected to grow at 9.7% in FY25, slightly higher than 9.6% in FY24.
   2. This nominal growth is lower than the 10.5% estimated in the Budget 2024-25, but it does not significantly affect the government’s fiscal calculations.

2. Per Capita Income:

   1. Per capita net national income is expected to rise by 5.3%, reaching Rs 1,12,358 in FY25.

3. Fiscal Deficit:

   1. The fiscal deficit-to-GDP ratio is likely to increase slightly from 4.94% in FY24 to 4.98% in FY25.
   2. However, the government is expected to achieve a lower fiscal deficit percentage (around 4.65% of GDP) due to better-than-expected tax collections and lower-than-expected capital expenditure.

Challenges and Risks to Growth

1. Cyclical Slowdown: India is undergoing a cyclical slowdown, a phase where growth is moderating due to several external and internal factors, such as weaker industrial activity and global economic conditions.
2. Base Effect: The strong base effect from the previous year is making it more difficult for India to achieve high growth numbers.
3. Political Uncertainty: The upcoming general elections could contribute to policy uncertainty, which may affect investor sentiment and economic stability.
4. Private Sector Investment: A key challenge remains the slow pace of private sector capital expenditure.
5. The private sector is still cautious about expanding capacity, which could impact long-term growth.
6. A slowdown in global demand, especially in key export markets, could continue to affect India's manufacturing and export sectors.

Conclusion:

India’s economy is facing a slowdown in FY 2024-25, primarily driven by weakness in the industrial and investment sectors. The projected 6.4% growth reflects the ongoing cyclical slowdown. While agriculture and services are performing better, manufacturing and investment have been major drags on the economy.

 

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