The economy is expected to grow less than 7% this fiscal year, with most economists expecting GDP growth of between 6.4% and 6.7%.
The economy grew at a slower-than-expected 5.4% in the second quarter of the fiscal year, following growth of 6.7% in the first quarter of the fiscal year. Although there was a resumption of growth during the third quarter of the current fiscal year, it appears to be weaker than expected. Official data on the first preliminary estimates of national income for 2024-2025 will be released on January 7. This data will provide policymakers with a basis for their projections for the Union Budget 2025-26 which will be presented on February 1.
“We continue to forecast GDP growth of 6.5% YoY for FY25, with risks tilted to the downside. This figure explains the weaker-than-expected growth of 5.4% in the second quarter of FY25, but still factors in a rebound in activity in the second half of FY25 as fiscal spending resume, growth in the rural sector improves and credit conditions potentially stop tightening. Even though high-frequency indicators suggest a slight improvement in the growth outlook, the strength and resumption of the recovery appear uncertain at the moment,” said Rahul Bajoria, head of India and ASEAN economic research at BofA Securities India, in a recent note.
This caution regarding growth forecasts is largely explained by the mixed picture painted by most high-frequency indicators. The HSBC India Services Activity Index hit a four-month high in December and rose to 59.3 from 58.4 in November. However, India’s HSBC Manufacturing Purchasing Managers’ Index fell to a one-year low in December to 56.4 from 56.5 in November. Meanwhile, net GST collections rose only 3.3 per cent in December on a year-on-year basis to Rs 1.54 lakh crore.
Acuité Ratings & Research pegged GDP growth in FY25 at 6.4%, while Nomura projected the economy to grow 6.7% this fiscal year. The Reserve Bank of India also lowered its GDP growth forecast for FY25 to 6.6% from its previous estimate of 7.2% in October 2024. The Finance Ministry also maintained its growth forecast of GDP at 6.5% for the fiscal year.
CareEdge Ratings also forecast GDP growth at 6.5% in FY25 and 6.7% in FY26. Rajani Sinha, chief economist at CareEdge Ratings, noted that the contraction public investments, prolonged monsoon and weakening urban demand impacted growth dynamics in the first half of FY25. “But we can expect a rebound in economic growth in the second half of FY25, supported by the recovery in consumption and a resumption of public investment. Healthy agricultural production and strong performance of the services sector will contribute to a rebound in GDP,” she said.
The economy has grown by more than 7% over the past three financial years. GDP growth stood at 9.7% in FY22, followed by an expansion of 7% in FY23 and 8.2% in FY24.
