FY25 GDP growth expected to fall to 6.4-6.7%: Economists

The economy is expected to grow by less than 7% this fiscal year, with most economists pegging GDP growth between 6.4% and 6.7%.

The economy grew at a slower-than-expected 5.4% in the second quarter of the fiscal year after expanding by 6.7% in the first quarter of the fiscal year. Although there is expected to be a recovery in growth in the current third quarter of the fiscal year, it is seen as weaker than expected. Official data on the first advance estimates of national income for 2024-25 will be released on January 7. The data will give policymakers a basis for their expectations about the Union Budget 2025-26, which will be presented on February 1.

“We continue to expect FY25 GDP growth of 6.5% y/y, with risks biased to the downside. This reading represents a weaker than expected growth of 5.4% in Q2FY25, but still weighs on the recovery in activity In the second half of FY25, as fiscal spending picks up, rural sector growth improves, credit conditions are more likely to stop tightening, said Rahul Bajoria, head of India and ASEAN economic research at Bank of America Securities Exchange of India, in a recent note: “While high-frequency indicators point to a slight improvement in growth prospects, the strength and height of the recovery appear uncertain at present.”

Much of this caution about the growth outlook comes from the mixed picture painted by most of the high-frequency indicators. The HSBC India Service Business Activity Index reached a four-month high in December and rose to 59.3 from 58.4 in November. However, the HSBC India Manufacturing PMI fell to a one-year low in December to 56.4 from 56.5 in November. Meanwhile, net GST collections rose just 3.3% in December year-on-year to Rs 1.54 lakh crore.

Acuité Ratings & Research has pegged FY25 GDP growth at 6.4% while Nomura expects the economy to grow at 6.7% this fiscal year. The Reserve Bank of India also lowered its GDP forecast for FY25 to 6.6% from its previous estimate of 7.2% in October 2024. The Finance Ministry also kept its GDP growth forecast conservative at 6.5% for the fiscal year.

CareEdge Ratings also forecast GDP growth of 6.5% in FY25 and 6.7% in FY26. Rajani Sinha, chief economist at CareEdge Ratings, noted that contraction in overhead capex, prolonged monsoon and weak urban demand impacted on growth momentum in 1H FY25. “But we can expect economic growth to rebound in 2H FY25, supported by a recovery Consumption and recovery in government capital expenditure She said that healthy agricultural production and strong performance of the services sector will be supportive of the recovery in GDP.

The economy has grown by more than 7% over the past three fiscal years. GDP growth was 9.7% in FY22, followed by a 7% expansion in FY23 and 8.2% growth in FY24.