India’s economy set for weakest growth since the pandemic

By Ruchi Bhatia

India’s government lowered its economic growth projection for the fiscal year to the weakest since the pandemic, with economists saying even that forecast may be too optimistic.

Gross domestic product is estimated to expand 6.4 per cent in the year through March, the Statistics Ministry said Tuesday, down from 8.2 per cent in the past financial year. The figure was in line with the median forecast in a Bloomberg survey of economists, but slightly below the government’s projection of 6.5 per cent last month.

The data confirm fears that India’s world-beating growth is moderating, making it more difficult for Prime Minister Narendra Modi to meet his ambitious goals of catapulting the nation into a developed economy and creating jobs for the millions of young people who enter the workforce every year.

Economists said it might be an uphill task for India to reach even the revised estimate for the year.

“A 6.4 per cent GDP growth in fiscal year 2025 implies a robust 6.8 per cent growth in the second half, which in our view is slightly ambitious,” said Anubhuti Sahay, an economist with Standard Chartered Plc.

Consumers have cut back on spending this fiscal year after wages slid and inflation spiked, while profits at some of the country’s major retailers took a knock. Spending by households and businesses makes up about 60 per cent of India’s GDP. The government has also undershot its budgeted expenditure this year, partly because of the elections that ran over several weeks, further crimping growth.

There were some bright spots in the data on Tuesday. Private consumption is expected to expand at 7.3 per cent this year, compared to 4 per cent last year, while government spending is projected to grow at 4.1 per cent compared to 2.5 per cent in the previous financial year. Radhika Piplani, an economist with DAM Capital Advisors Ltd., said that the numbers reflect the government’s optimism that rural spending will stay strong after a good monsoon, and public spending will gather pace in the coming months.

Yield on the 10-year government bond was trading up one basis point to 6.76 per cent on Wednesday. The rupee was 0.1 per cent lower.

Some economists are more bearish than the government about the growth outcome this year, with Goldman Sachs Group Inc. and Nomura Holdings Inc. predicting 6 per cent. Growth is also likely to remain under pressure in coming months as geopolitical tensions and proposed tariffs by US President-elect Donald Trump curb global trade and investment.

“We expect growth to be revised lower,” Nomura economists Sonal Varma and Aurodeep Nandi wrote in a note to clients. “Growth has been a mixed bag during the festive season of October-November, especially for consumption, industrial and investment growth has been mostly tepid, and early data for December do not suggest a strong rebound thus far.”

Pressure is now building on new central bank governor, Sanjay Malhotra, to begin cutting interest rates and reverse the restrictive stance of his predecessor Shaktikanta Das. Under Das, the Reserve Bank of India has kept interest rates unchanged for almost two years despite growing calls, including from within the government, to ease.

What Bloomberg Economics Says

The slump in India’s GDP growth signals the fragile state of the economy and the need for all-out policy support to get it back on track. The first advance estimate of growth for the year through March 2025 undershot even the Reserve Bank of India’s recently lowered projection. This should spur calls for the central bank to undo its restrictive policy by initiating an easing cycle at its next review in February. Abhishek Gupta, India economist—For the full note, click here

Malhotra said in a report last month that the economy will probably rebound in coming months given strong consumer and business confidence. The RBI’s first monetary policy decision this year is scheduled for February 7.

Madhavi Arora, an economist with Emkay Financial Services Ltd., said the government’s growth estimate, which is lower than the RBI forecast of 6.6 per cent, will pressurize the central bank to “ease rates, possibly in the next policy meeting, even as global conditions remain tricky.”

The government’s advance GDP estimate released Tuesday will be used to assess spending priorities in its upcoming budget. Finance Minister Nirmala Sitharaman is expected to deliver her budget speech in early February.