Lost momentum, looming concerns

Sluggish manufacturing raises apprehensions as GDP growth hits a four-year low

The first advance estimates of GDP growth for 2024-25, released by the National Statistics Office (NSO), show the economy losing momentum to an unexpected extent. The estimates have projected growth at 6.4 per cent, which is a steep fall from last year’s 8.3 per cent. It marks a four-year low, and is the lowest growth after the contraction during the Covid period.

The first half of the year saw a growth of 6 per cent, with the second quarter showing a sharp dip to 5.4 per cent, which was a seven-quarter low. The NSO’s estimate is marginally lower than the RBI’s revised forecast of 6.6 per cent. The Centre had expected a growth of 6.5 per cent. In nominal terms, the growth may be 9.7 per cent against the budgetary assumption of 10.5 per cent.

Among sectors, only agriculture showed growth significantly higher than last year, thanks to a good monsoon. It is likely to rebound from 1.4 per cent last year to 3.8 per cent. Most negatives are seen in the industrial sector, particularly in manufacturing. The sector is expected to grow at a low 5.3 per cent as against the 9.9 per cent last year.

Construction and electricity, gas, and water supply segments will see decelerating growth. The services sector is also likely to see a slowdown. Private consumption is expected to improve to 7.3 per cent this year from 4 per cent. There were worries about the trends in spending, but rural demand is likely to look up because of the better kharif performance.

The outlook for the rabi crop is also good. But urban demand may not see much of an uptick. The government has attributed the demand slowdown to the Reserve Bank of India’s monetary policy stance and other measures. But the central bank had to respond to inflation as it is a part of its mandate.

It should be noted that much of the investment that boosted growth in the post-Covid years came from the government’s capital expenditure. It may be difficult to sustain that in the coming months. Revenue collection estimates are unlikely to be met this year. The first advance estimates are likely to be used for preparation of the budget.

The estimates are also likely to be revised, going forward. But they show that there are challenges ahead for the economy. There is even a view that the actual growth rate this year may be less than the present estimates. Uncertainties on the global scene can also impact the domestic situation. The Union Budget will have to respond to these concerns, because that is the most important policy instrument available to the government in the near future.