India’s economic growth may slow to 6.5% in FY25: India Ratings & Research

Exports to face global headwinds; rupee may depreciate to 85.59 against dollar.

India’s economic growth is likely to slow to 6.5 per cent in 2024-25 from the projected expansion of 7.3 per cent in the current financial year dragged by slowdown in industrial sector growth amid muted consumption demand, India Ratings & Research (Ind-Ra) said on Thursday.

Industry sector growth is estimated to decline to 6.5 per cent in the financial year beginning April as against 7.9 per cent projected growth for the current fiscal. Growth in the services sector, which constitutes over 50 per cent of India’s GDP, is likely to ease to 7.3 per cent in 2024-25 from 7.7 per cent projected for the current fiscal. However, agriculture sector growth is estimated to accelerate to 3 per cent in 2024-25 from 1.8 per cent in the current fiscal.

Ind-Ra’s growth projections for 2024-25 is 50 basis points lower than the Reserve Bank of India’s estimate. In its monetary policy review earlier this month the RBI pegged FY25 GDP growth at 7 per cent.

Addressing a media conference, Chief Economist of India Ratings & Research Devendra Pant said despite the base effect, the sequential GDP growth indicates that the economic recovery is on track due to the sustained government capex, healthy corporate performance, deleveraged corporates/banking sector balance sheet and continued softness in global commodity prices.

However, the rating agency underlined the weakness in consumption demand and investment pattern. It noted that the aggregate demand is largely driven by the government capital expenditure. Prevailing consumption demand is still skewed in favour of the goods and services consumed by the households belonging to the upper 50 per cent of the income bracket, it said.

“For sustained consumption demand growth, demand for the goods and services consumed by the households belonging to the lower income bracket also has to pick up,” the rating agency added.

According to the rating agency, India’s exports, which have been subdued in the current financial year, are likely to face global headwinds even in 2024-25. India’s merchandise exports in the April-January period of the current financial year fell to $353.92 billion, which is 4.89 per cent lower when compared with the same period of last year, as per the latest data released by the Ministry of Commerce and Industry.

The rating agency forecast that the Indian rupee is likely to depreciate by over 3 per cent in the financial year beginning April 1, 2024. It may depreciate to an average of 85.59 against a dollar in 2024-25 from 83.05 in the current fiscal.

The Consumer Price Index (CPI) based retail inflation is likely to ease to 4.8 per cent in 2024-25 from 5.5 per cent in the current year. However, Wholesale Price Index (WPI) based inflation is estimated to jump to 2.2 per cent in 2024-25 against an estimated deflation of 0.6 per cent in the current fiscal.

Sunil Kumar Sinha, Principal Economist at India Ratings & Research, said the rise in wholesale price inflation would hit corporate profitability.

“A rise in input cost, if not adequately passed into output prices, will reduce value addition/corporate margin. Given that consumption is not broad-based, producers will find it difficult to pass on the higher input cost to output prices,” Sinha said.