Concerns over India's Economic Growth Projection for FY25

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Concerns over India's Economic Growth Projection for FY25

Economists project that India's economy will experience growth below 7% in the current fiscal year, with many forecasting GDP growth rates between 6.4% and 6.7%. Despite an initial expansion of 6.7% in the first quarter, the economy saw a slower growth rate of 5.4% in the second quarter, leading to concerns about a weaker than anticipated performance. The ongoing third quarter shows some signs of growth, yet it is not as robust as expected.

Official data on the preliminary estimates of national income for 2024-25 are scheduled to be released on January 7, providing policymakers with crucial information for the upcoming Union Budget 2025-26 presentation on February 1. Experts like Rahul Bajoria from BofA Securities India remain cautious about FY25 GDP growth, anticipating it to be around 6.5% due to various factors influencing the economy, such as fiscal spending, rural sector performance, and credit conditions.

The economic forecast is muddied by conflicting high-frequency indicators, as evidenced by the HSBC India Services Business Activity Index reaching a four-month high in December while the India Manufacturing Purchasing Managers’ Index dropped to a one-year low in the same month. The growth in net GST collections by just 3.3% year-on-year in December to Rs 1.54 lakh crore further adds to the mixed signals about the economy's trajectory for the fiscal year. Various financial institutions, including Acuité Ratings & Research, Nomura, and the Reserve Bank of India, have adjusted their GDP growth forecasts downward, with estimates ranging from 6.4% to 6.7%.

Looking ahead, economists like Rajani Sinha of CareEdge Ratings anticipate a rebound in economic growth in the second half of FY25, driven by recovery in consumption, increased government capex, and strong performance in the agriculture and services sectors. Despite the caution surrounding the FY25 projections, India has seen robust GDP growth rates above 7% in the preceding three financial years, reflecting a period of strong economic performance.