The economy is seen to grow at less than 7% this fiscal with most economists pegging GDP growth between 6.4% and 6.7%.
The economy grew at a slower than anticipated 5.4% in the second quarter of the fiscal after expanding by 6.7% in the first quarter of the fiscal. While there is seen to have been a pickup in growth in the ongoing third quarter of the fiscal, it is seen to be weaker than anticipated. Official data on the first advance estimates of national income for 2024-25 will be released on January 7. The data will give policy makers a base for their projections for the Union Budget 2025-26 which will be presented on February 1.
“We continue to expect FY25 GDP growth at 6.5% year on year, with risks biased to the downside. This print accounts for the weaker than expected growth print of 5.4% in Q2FY25 but still factors in a rebound in activity in H2FY25, as fiscal spending picks up, rural sector growth improves, and credit conditions potentially stop tightening. While the high frequency indicators suggest minor improvement in growth prospects, the strength and rally of the recovery seems uncertain for now,” said Rahul Bajoria, Head of India and ASEAN Economic Research, BofA Securities India in a recent note.
Much of this caution on growth forecasts comes from the mixed picture that most high frequency indicators have painted. The HSBC India Services Business Activity Index hit a four month high in December and rose to 59.3 from 58.4 in November. However, the HSBC India Manufacturing Purchasing Managers’ Index had slipped to a one year low in December to 56.4 from 56.5 in November. Meanwhile, net GST collections grew by just 3.3% in December on a year on year basis to Rs 1.54 lakh crore.
Acuité Ratings & Research has pegged GDP growth in FY25 at 6.4% while Nomura has forecast that the economy will grow by 6.7% this fiscal. The Reserve Bank of India has also lowered the GDP forecast for FY25 to 6.6% from its earlier estimate of 7.2% in October 2024. The finance ministry has also kept GDP growth forecast conservative at 6.5% for the fiscal.
CareEdge Ratings has also projected GDP growth at 6.5% in FY25 and 6.7% in FY26. Rajani Sinha, Chief Economist, CareEdge Ratings noted that the contraction in public capex, prolonged monsoon and weakening urban demand impacted growth momentum in H1 FY25. “But we can expect the economic growth in H2 FY25 to rebound, supported by the recovery in consumption and a pick-up in government capex. Healthy agriculture production and robust services sector performance will be supportive of a rebound in GDP,” she said.
The economy has grown at over 7% for the past three financial years. GDP growth came in at 9.7% in FY22, followed by 7% expansion in FY23 and 8.2% growth in FY24.
