GDP figures show India is back on the road to growth

Indian Express

2 days ago

The National Statistics Office's (NSO) provisional estimates peg India's gross domestic product (GDP) growth at 6.5 per cent for 2024-25, with the fourth quarter growing at a blistering 7.4 per cent. The first and second advance estimates, which were based on limited data, had projected 6.4 per cent and 6.5 per cent, respectively.
The positive surprises in GDP revisions seen in the past three fiscals may end here, at least for now. The economy seems to be realigning with its long-term trend growth. The decadal average growth before the Covid-19 pandemic was 6.6 per cent.
For 2023-24, the first advance estimates had pinned growth at 7.3 per cent, the provisional estimates revised that to 8.2 per cent and then to 9.2 per cent. In India's GDP reporting framework, provisional estimates are more reliable and enduring than the two preceding advance estimates. The next GDP estimate for fiscal 2025 will be released in early 2026. Until then, these estimates provide a more stable basis for forecasting GDP amid a wall of global uncertainty.
India's nominal GDP, which factors in the inflation rate, grew 9.8 per cent in fiscal 2025. Put another way, the size of the absolute economy reached $3.91 trillion from $3.6 trillion in fiscal 2024.
Private consumption grew a good 7.2 per cent on rural demand even as urban stayed subdued. That said, consumption growth did slow to 6 per cent in the fourth quarter. Government consumption expenditure, too, was restrained, growing 2.3 per cent for the full fiscal year and dropping to -1.8 per cent in the fourth quarter. Government investments picked up sharply in the fourth quarter, helping investment growth outpace GDP. Central government capex exceeded the revised estimates for the full fiscal.
On the supply side, agriculture and services performed well, but manufacturing was a laggard, growing 4.5 per cent — slower than agriculture. Merchandise exports were nearly flat at $437.41 billion ($437.07 billion in fiscal 2024). Labour-intensive construction ratcheting up 9.4 per cent over the double-digit growth last fiscal augurs well for employment.
The economic outlook for fiscal 2026 will be shaped by the interplay of global tariff shocks and the buffers and policy levers India has. While our economy is primarily driven by domestic factors, growing ties with developed nations through trade and capital flows means it cannot be fully insulated from adverse global events.
The external environment has undergone a dramatic shift this year following the imposition of reciprocal tariffs by the US and ongoing escalation and de-escalation. This can impact India via both direct and indirect channels. The direct impact is felt through the effects on the US economy and the increased tariffs that hinder our competitiveness. With US growth expected to slow to 1.5 per cent in calendar 2025 from 2.8 per cent in 2024, demand for Indian exports to the US will decrease. The full impact will only become clear once the India-US trade deal is concluded.
The indirect or collateral impact will play out via slowing growth in other export markets for India, such as the European Union and Asia. S&P Global expects global growth to slip to 2.7 per cent in 2025 from 3.3 per cent in 2024. The elevated tariffs on Chinese goods will exacerbate China's overcapacity and deflationary pressures, prompting it to divert excess supply to other markets, including India. The recent thaw in US-China trade tensions saw both countries agreeing to reduce tariffs by 115 per cent for a 90-day period. However, this provides only a temporary relief, and uncertainty looms over what will follow the 90-day window.
The persistent uncertainty is delaying private investment decisions and remains a concern for volatility in capital flows, financial markets and currency exchange rates. India has some buffers, and positive developments will support economic activity this fiscal.
The composition of India's exports provides some resilience, as services exports, which now account for nearly half of the country's exports, are less vulnerable to global trade cycles than goods exports. According to the World Trade Organisation, global goods trade will contract 0.2 per cent in calendar 2025, while services trade will grow at 4 per cent. Although services exports will slow, it will do so at a slower pace than goods exports, providing some buffer on the trade front.
A low current account deficit, moderate government external debt and healthy forex reserves (at $686 billion currently) reduce India's vulnerability to global shocks, but do not provide complete insulation.
A record wheat harvest and strong pulses output, as per the second advance estimates, along with a favourable monsoon forecast for the upcoming kharif season, are expected to boost agricultural production and control food inflation. Moreover, we expect crude prices to average a low around $65 per barrel this fiscal. These factors provide the RBI with more elbow room to support growth. We anticipate two more rate cuts of 25 basis points this fiscal.
Essential items such as food and fuel account for a larger share of the consumption basket for lower-income households. Thus, low food inflation will improve discretionary spending for lower-income groups in both urban and rural areas. Urban consumption will be further supported by low interest rates and income tax cuts announced in the budget, which will take effect this fiscal. This, in turn, will complement healthy rural consumption.
Unlike the previous fiscal year, the central government seems to be prioritising capital expenditure at the outset this year. In April, capex reached Rs 1.59 lakh crores, accounting for 14.3 per cent of the budget target.
Despite tepid domestic private investment prospects and the government's limited ability to fuel public investment due to fiscal considerations, India is benefiting from global supply-chain shifts. Apple plans to manufacture most iPhones for the US market in India, and a Vietnamese electric vehicle manufacturer is set to open an Indian plant in June, with product launches expected this year. More such investment opportunities are likely as companies diversify away from China. The strong financials of Indian corporates, especially large and mid-sized, has led to resilience and flexibility to capitalise on opportunities.
But reforms that address structural bottlenecks remain crucial to raise India's attractiveness as an investment destination and unlock its growth potential. Given the overall landscape, we expect India's GDP to grow 6.5 per cent this year, with risks tilted to the downside.
The writer is Chief Economist, CRISIL