A slower growth trajectory beckons the Indian economy in the upcoming fiscal year, with industrial sluggishness and declining investments impacting performance. The agriculture and services sectors are in good health, a report has claimed, but the same can’t be said about the primary and secondary sectors that are witnessing a slowdown.
The first half of the fiscal year is expected to slow down the overall growth, but analysts are optimistic of a turnaround of sorts. Consumption levels are likely to drive the economy, driven by private spending, but investment activities might witness a decline. Government expenditure should increase, providing relief to the economy. Overall, nominal GDP and per capita income are set to grow, although not at the desired pace, which could significantly impact fiscal deficit targets.
Preliminary estimates from the National Statistics Office suggest that India’s gross domestic product for fiscal 2024-2025 would rise only at a pace of 6.4%, marking a four-year low, as industrial stagnation and falling investment continue to impede growth. Both the government and the Reserve Bank of India continue to be positive, however. The Reserve Bank projects growth at 6.6%.
Overall, economists believe that the Indian economy is in a state of cyclical slowdown, which is evident in the discouraging growth figures.
It is held that a stronger momentum in the latter half of the fiscal year will offset the periods of slow progress. The economy’s performance in the first-half might reduce the annual growth rate to 6.4%. Forecasts indicate that the GDP will rise at 6.7% in the second half (October-March) compared to 6.0% in the first (April-September).
The recent data up to November 29, 2024 has highlighted that the GDP’s growth was at a seven-quarter low of 5.4% for July-September 2024 owing to sluggishness in manufacturing and mining sectors. In contrast, the April-June quarter was impressive at 6.7%.
The report added that the mining and quarrying sector should grow by 2.9% in FY25, though that still is down from 7.1% last year. The GVA of the manufacturing sector, the heartbeat of India’s economy, should increase by 5.3% in 2024–2025, a drop from 9.9% in 2023–2024.
Real GVA growth in agriculture and allied industries is expected to increase from 1.4% in FY24 to 3.8% in FY25.
The services sector is progressing satisfactorily and is expected to grow by 7.2% in FY25 compared with 7.6% in FY24. Public administration, defence and other services, the economy’s primary biggest drivers, should grow by 9.1% in FY25 when compared with 7.8% in FY24.
Other industries are forecasted to grow at very low rates. Growth in trade, hospitality, transport, communication, and broadcasting services is expected to slow down to 5.8% in 2024–2025 from 6.4% in 2023–2024.
Financial, real estate, and professional services are likely to grow at 7.3% compared to 8.4% in 2023–2024.
Consumption is expected to be high; however, but investments could be low compared to last year. Private final consumption expenditure is expected to grow at 7.3% during FY25 as against 4.0% last year.
Gross Fixed Capital Formation (GFCF) is likely to increase by 6.4% as against 9.0% of FY24 on account of less capital spending both from the Centre and states along with private investment.
Economic growth is also supported by increased government expenditure. GFCE is expected to rise by 4.1 %, whereas last year, it was only 2.5 %.
GVA (gross value added), which measures national income, is expected to rise by 6.4% in FY25, as compared to the 7.2 % registered in FY24.
Net national income per capita is likely to increase by 5.3 % to Rs 1,12,358 in FY25. Nominal GDP, with inflation, could increase by 9.7 % in FY25 from 9.6 % in FY24.
The nominal GDP growth forecast is set below the 10.5 % in Budget 2024-25. However this is less likely to worry the government concerning its fiscal plan since it may not meet its fiscal deficit targets.
Per capita net national income is likely to increase by 5.3% to Rs 1,12,358 in FY25. Nominal GDP is expected to grow by 9.7% in FY25, while the same had been recorded at 9.6% in FY24. Nominal GDP growth is estimated to be below the 10.5% that Budget 2024-25 had projected, but this will probably not impact the government’s fiscal math as the fiscal deficit target is likely to be missed.
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