FY25 GDP growth estimated at 6.4%, lowest in 4 yrs

New Delhi: India’s economic growth is projected to dip to 6.4 per cent in 2024-25, the worst performance in four years, as government capital expenditure, a key driver of post-pandemic recovery, moderated due to election-related curbs, and low urban demand hit manufacturing output, official data showed on Tuesday.

Despite a low base and favourable conditions, private sector investments remain sluggish. Investment growth is estimated to decline to 6.4 per cent in the current financial year (FY25) from 9 per cent recorded in the previous year (FY24), according to the first advance estimate of GDP released by the National Statistics Office (NSO).

The country’s real gross domestic product (GDP) growth in FY24 stood at 8.2 per cent. The Economic Survey, released in July 2024, projected FY25 growth at 6.5 to 7 per cent. Last month, the Reserve Bank of India (RBI) lowered its FY25 GDP growth outlook to 6.6 per cent from 7.2 per cent.

Agriculture sector growth is estimated to be at 3.8 per cent in FY25, better than a sluggish 1.4 per cent expansion recorded in the previous year. Services sector growth is estimated to decline from 7.6 per cent in FY24 to 7.2 per cent in FY25.

The industrial sector is the worst hit, with growth estimated to decline to 6.2 per cent from 9.5 per cent. Both manufacturing and mining are expected to decelerate in the current fiscal as compared to FY24.

“Decline in government capital expenditure, a key driver of post-pandemic recovery, in the second quarter is unlikely to be compensated for in the rest of the fiscal,” said Dharmakirti Joshi, Chief Economist, CRISIL.

State Bank of India’s Group Chief Economic Adviser Soumya Kanti Ghosh said the GDP growth for the current fiscal could be 6.3 per cent, with downward bias. “Marked slowdown is evident in all subsegments of industry,” Ghosh said in a note.

On the positive side, private consumption is estimated to perform relatively well.

The private final consumption expenditure growth is estimated to accelerate to 7.3 per cent in FY25 from 4 per cent in FY24. Government final consumption expenditure growth is estimated to increase from 2.5 per cent to 4.1 per cent while growth in exports has been pegged at 5.9 per cent from 2.6 per cent.

Rural consumption, which constitutes about 60 per cent of India’s total private consumption, will receive a boost from healthy kharif production and promising prospects for the rabi season. This is reflected in higher agricultural growth estimated for this fiscal, said Joshi.

Moreover, the anticipated decline in food inflation will support discretionary spending, particularly among low-income households with a higher proportion of food in their consumption basket.

“Going forward, for FY26, we expect real GDP growth at 6.7 per cent. The most important monitorable would be a more broad-based pick up in consumption demand, especially amid reports of slowing urban consumption,” said Rajani Sinha, Chief Economist, CareEdge Ratings.