India’s real GDP growth rate is pegged at a four-year-low of 6.4 percent for 2024-25, weighed down by a likely decline in manufacturing and investments. The latest estimates are lower on all counts. They are far below the 8.2 percent growth seen last fiscal, lower than the Economic Survey’s 6.5-7 percent and even the RBI’s revised forecast of 6.6 percent. The National Statistical Office’s first advance estimates project the nominal GDP to grow at 9.7 percent, lower than the previous estimate of 10.5 percent. They show that growth averaged 6 percent in the first half of the current fiscal and is likely to turn in 6.8 percent in the second half. Analysts are divided, with some expecting the second advance estimates, to be released next month, to include a slight upward revision in both the real and nominal rates, while others believe the government is underestimating the extent of the economic slowdown.
While the government expects the second half to do better, high-frequency data for the just-concluded third quarter isn’t promising. While services activity stood at a four-month high in December, manufacturing dipped to a 12-month low. Consumer goods and auto sales are flashing signs of low growth, notwithstanding the festive spending. As if that’s not enough, manufacturing—on which the government was banking to create jobs and spur economic activity—will likely weaken to 5.3 percent in 2024-25 from 9.9 percent in 2023-24. Disappointingly, investment growth too is likely to print lower at 6.4 percent, down from 9 percent. The silver lining is that consumption is expected to grow faster at 7.3 percent compared to 4 percent the previous year, while agriculture too will likely outperform at 3.8 percent as against 1.4 percent in 2023-24.
The outlook for 2025-26 is not rosy either, particularly given the looming geopolitical uncertainties. Besides volatility in oil prices, an abnormal monsoon can throw a spanner in the works. Though agriculture is expected to rebound, it’s vulnerable to cyclical fluctuations. Other key components like mining, power and construction are punching below potential. Government capital expenditure, which has been the driving force post pandemic, has moderated significantly, due to which the real GDP growth in Q2 saw a sharp slowdown at 5.4 percent. Unarguably, public spending has sustained growth after the pandemic, and keeping to the path of fiscal consolidation may further deepen the slowdown.