
Experts and institutions are anticipating India's economic growth to fall below 7% in the current fiscal year, with most economists projecting a GDP growth rate between 6.4% and 6.7%. The economy experienced a slower-than-expected growth of 5.4% in the second quarter, following a 6.7% expansion in the first quarter. Although there are signs of growth picking up in the ongoing third quarter, the pace is expected to be weaker than initially anticipated.
Official data on the first advance estimates of national income for the fiscal year 2024-25 are set to be released on January 7, providing policymakers with a foundation for their projections in preparation for the Union Budget of 2025-26 to be presented on February 1. Despite expectations of a rebound in economic activity during the second half of the fiscal year, uncertainties remain about the strength and sustainability of this recovery, as highlighted by Rahul Bajoria, Head of India and ASEAN Economic Research at BofA Securities India.
The caution surrounding growth forecasts is largely due to the mixed signals from high-frequency indicators. While the HSBC India Services Business Activity Index reached a four-month high in December, the HSBC India Manufacturing Purchasing Managers’ Index slipped to a one-year low. Additionally, net GST collections grew by a modest 3.3% year-on-year in December. Various institutions, such as Acuité Ratings & Research and Nomura, have put forth differing projections for GDP growth in the current fiscal, with the Reserve Bank of India revising its forecast to 6.6% from an earlier estimate of 7.2% in October 2024.
Despite the challenges faced by the economy, there is optimism for a rebound in GDP growth in the second half of the fiscal year, supported by factors like a recovery in consumption, a rise in government capex, healthy agricultural production, and a robust services sector performance. The finance ministry and other rating agencies have maintained relatively conservative GDP growth forecasts, with expectations that the economy will gradually pick up momentum after a challenging start to the fiscal year.