India's GDP growth projected to hit 4-year low in FY25
What's the story
India's Gross Domestic Product (GDP) is expected to grow at 6.4% in FY25, the slowest pace in four years. This is a sharp decline from the previous fiscal year's growth rate of 8.2%.
The government data released today indicates that this year may be the first time in four years that growth dips below the 7% mark.
The first advance estimates for the fiscal year form the basis for the Union Budget projections for 2025-26.
Economic fluctuations
Q2 GDP growth slumps to near 2-year low
The Indian economy had a good start in the first quarter of FY25, growing at a rate of 6.7%.
However, the momentum did not continue into the second quarter, which witnessed a steep fall to a near two-year low of 5.4%.
The average growth for the first half of the fiscal year was 6% and is likely to remain below 7% in H2 as well.
Sectoral performance
Services sector up, manufacturing hits 12-month low
Recent high-frequency data has shown mixed results for various sectors of the Indian economy.
While the services sector surged to a four-month high in December, the manufacturing sector slumped to a 12-month low.
GST growth slipped to its lowest level in three months.
These developments indicate varied impacts on different areas of the economy.
Growth forecasts
RBI and government's growth projections for FY25
The Reserve Bank of India (RBI) has projected a slightly higher economic growth rate of 6.6% for FY25.
Meanwhile, the government's forecast is between 6.5-7%.
These estimates suggest that both institutions expect a potential slowdown in the third quarter that could further dampen overall growth for the fiscal year.
Fiscal implications
Fiscal deficit and nominal growth concerns
The nominal growth rate has also witnessed a decline, with a lower number of 9.7% raising questions over the fiscal deficit number.
If the government sticks to its fiscal deficit target, then this ratio is likely to fall to 5% of the GDP.
However, considering reduced capital expenditure, experts believe the fiscal deficit could stay at 4.9%.