The first advance estimates of national income released on Tuesday showed the economy growing at 6.4% this fiscal year, while growth prospects for FY26 also dimmed, raising fresh concerns for policymakers preparing proposals for the union. Budget 2025-26.
Private consumption has picked up sharply and is estimated to grow by 7.3% this fiscal, while challenges in private investment demand as well as declining government spending are expected to continue for the remaining months of this fiscal. Experts have also flagged risks from global uncertainties extending into FY26.
According to estimates released by the Ministry of Statistics and Program Implementation, gross value added (GVA) has grown by 6.4% in FY 2024-25 as against the growth rate of 7.2% in FY 2023-24. Nominal GVA has shown a growth rate of 9.3% in FY 2024-25 as against a growth rate of 8.5% in FY 2023-24.
“The lower GDP for FY25 is a result of the cyclical slowdown in the Indian economy over the past three quarters. Besides, some of the factors affecting growth were strong base effect, general election, weak private sector top and monetary and fiscal tightening.
Agriculture is seen growing by 3.8% this fiscal, while mining and quarrying is projected to grow by 2.9% and manufacturing by 5.3% this fiscal. Among sectors, the fastest growth in public administration, defense and others is estimated at 9.1% this fiscal, followed by construction at 8.6% and finance, real estate and professional services at 7.3%.
Private consumption rises, investment slows:
However, the rise in private final consumption expenditure to 7.3% this fiscal, from 4% last fiscal, is seen as a silver lining in the data, especially as rural consumption has seen a rebound after good monsoons.
Dharmakirthi Joshi, chief economist at Crisil, said the expected slowdown in food inflation would support discretionary spending, especially by lower-income households with a high percentage of food in their consumption basket. However, he pointed out that the urban economy is grappling with the twin challenges of high inflation and slow credit growth.
However, despite various measures, private sector investment remains sluggish. Gross fixed capital is estimated to grow at 6.4% in FY25 from 9% last fiscal.
FY26 Growth Prospects Dim, More Action Needed:
Most analysts expect growth to remain below 7% in FY26 as well. “We forecast the Indian economy to expand by 6.7% in the next fiscal year under the base case scenario, driven by public infrastructure spending, lower crude oil prices, a normal monsoon and monetary easing. That said, policymakers need to remain vigilant in the face of escalating geopolitical and climate risks,” Joshi said.
Aditi Nayar, ICRA's Chief Economist and Head & Head, forecasts GDP growth at 6.5% in FY26 based on an expected capex boost in the upcoming budget. “In our view, global uncertainties as well as domestic uncertainties will decisively impact GDP growth in FY26 amid significant primary impacts,” she noted.
She noted that while MOSPI's implied H2 FY2025 projections look reasonable, some sector numbers may report higher growth prints in H2 FY2025. For example, dissipating the adverse impact of excess rainfall that affected growth in the 2nd quarter of FY25, expected rise in rural demand, growth rates in mining, manufacturing and trading, hotels and transport sectors are likely to exceed the assumed rates. and the favorable primary effect of some stocks. “Similarly, on the expenditure side, GFCF growth is likely to be higher than NSO's implied estimate of 6.4% for H2 FY2025, amid expectations of a pick-up in government capex and some improvement in private capex activity. H1 was adversely affected due to elections in FY2025,” she said.
The experts also called for continuous measures by the government to maintain the growth rate.
DK Srivastava, Chief Policy Advisor, EY India, said the government would do well to further emphasize infrastructure expansion as the core of its growth strategy in the face of continued global uncertainties.
Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research, however said sustained domestic demand revival will be the key to 7%+ growth in the medium term.