India stares at slowdown—Economic Survey pegs FY26 GDP below 7%
What's the story
The Economic Survey 2024-25 projected India's real Gross Domestic Product (GDP) growth for FY26 at 6.3%-6.8%.
This forecast suggests a possible slowdown in the economy after years of strong growth.
The survey also estimates the country's GDP will grow at 6.4% in FY25, the slowest in four years amid a struggling manufacturing sector and declining corporate investments.
Economic deceleration
India's GDP growth rate slows down
India's GDP growth has been on a downward trajectory, with the FY25 rate projected at 6.4%, the lowest in four years.
This marks a sharp decline from the stellar 8.2% growth witnessed in FY24 when India was hailed as the fastest-growing major economy in the world.
The slowdown is due to a subdued manufacturing sector and sluggish corporate investments, which have been flagged as major drivers of economic performance.
Economic concerns
Concerns over India's economic performance
Concerns have been raised over India's economic performance as growth slipped to a seven-quarter low of 5.4% in Q2 of FY25, down from 8.1% during the same period last year and 6.7% in the previous quarter.
Reduced business spending, high inflation resulting in lower consumer spending, and declining corporate profits are some of the reasons behind it.
This slowdown has prompted some to wonder if the post-pandemic boom years were just a short-term rebound in pent-up consumer demand after two years of government-imposed lockdowns.
Growth challenges
Slower growth rate presents challenges for Modi government
The slower growth rate, albeit enviable by many nations, poses new challenges for the Modi government.
These challenges come after last year's elections where his Bharatiya Janata Party lost ground in parliament over economic concerns like high inflation.
To realize Modi's vision of making India a developed country by 2047, experts say a growth rate closer to 8% is needed.
However, most economists and multilateral institutions believe consistently achieving this target will be difficult in the coming years.
Growth forecasts
International institutions forecast India's future growth
International institutions such as the International Monetary Fund and the World Bank expect India's growth to average 6.5% and 6.7% respectively over the next few years.
Goldman Sachs predicts a growth of only 6% for the current fiscal year ending in March and 6.3% in FY25-26.
These estimates are below India's average growth rate of 7% in the pre-pandemic decade, viewed by the country's central bank as its potential rate of economic expansion.