India’s FY25 GDP seen growing at slowest pace in four years

India’s gross domestic product (GDP) this fiscal year is projected to grow at the slowest pace since the pandemic, and settle below the 7%-mark for the first time in four years.

GDP is projected to grow at 6.4% in the current fiscal, down from 8.2% in the past financial year, the first advance estimates released by the government showed.

Advance estimates provide policymakers, investors, and businesses with an early indication of economic performance, enabling them to plan ahead. The first advance estimates are often revised later as more data becomes available, leading to second and final estimates.

The latest growth estimate is lower than even the finance ministry’s own projection of 6.5% last month. The Reserve Bank of India (RBI) had projected economic growth in FY25 at 6.6%.

The economy had grown at 6.7% in the first quarter of FY25, before growth slumped to a two-year low of 5.4% in the second quarter.

Manufacturing activity declined to a 12-month low in December, while services activity climbed to a four-month high, purchasing managers’ surveys showed.

Among sectors, the statistics ministry estimates that agriculture and allied industry is expected to grow by 3.8%, up from 1.4% last year.

The construction and the financial, real estate and professional services sectors are projected to grow strongly at 8.6% and 7.3%, respectively.

While private consumption is expected to increase by 7.3%, up from 4% last year government consumption is expected to grow by 4.1%, recovering from 2.5% in the previous year.

Rajani Sinha, chief economist at the rating agency Care Edge said that India’s GDP growth for FY25, as per First Advance Estimates, has been reported at 6.4%, broadly in line with the expectations of rating agency. She said, “As expected, growth is estimated to pick up in the second half of the year to 7%, surpassing the 6% growth recorded in H1.”

She however added that the concerning aspect of the data is the moderation in investment growth to 6.4% in FY25 from 9% in the previous year.

She added that the government investment had moderated in H1 due to election related uncertainties but was expected to pick up in the second half. However, the data is not showing a pick up, with investment growth in H2 estimated to remain around the same as H1.

“This means private investment is also not picking up meaningfully. The positive aspect is that Private consumption is estimated to show a strong growth of 7.3% in FY25 compared to a feeble growth of 4% in FY24. Consumption growth is estimated to accelerate in H2 compared to H1,” added Sinha.

Healthy agri growth and likely moderation in food inflation should help boost consumption in the months to come. Sustained consumption growth will also help pull in private investment, she estimated

For FY26, the rating agency expects real GDP growth at 6.7%,  Sinha further said, “The most important monitorable would be a more broad-based pick up in consumption demand, especially amid reports of slowing urban consumption.”

The other critical aspect would be a meaningful pickup in private investment in the coming quarters.

Additionally, monitoring headwinds to growth emerging from external sources like trade policy uncertainty, volatility in global markets, and geopolitical risks would be crucial, Sinha added.