The economy is expected to grow 6.4% this fiscal year, according to the first preliminary estimates of national income released on Tuesday, also dampening the growth outlook for FY26 and raising fresh concerns for policymakers who are in the process of developing proposals for the Union. Budget 2025-2026.
Even though private consumption appears to have seen a sharp rebound and is expected to grow by 7.3% this fiscal year, challenges in private investment demand as well as weak public spending are expected to persist in the remaining months of this fiscal year. . Experts also flagged risks from global uncertainties that extend into FY26 as well.
According to estimates released by the Ministry of Statistics and Program Implementation, Gross Value Added (GVA) grew by 6.4 percent in the financial year 2024-25, compared to the growth rate of 7 .2% in FY 2023-24. Nominal GVA showed a growth rate of 9.3% in FY 2024-25, compared to a growth rate of 8.5% in FY 2023-24.
“The lower GDP growth in FY25 is a result of a cyclical slowdown in the Indian economy over the last three quarters. Apart from this, some of the factors affecting growth were strong base effect, general elections, weak private sector investment and monetary and fiscal tightening,” said Paras Jasrai, senior economic analyst at India Ratings and Research .
While agriculture is reported to have grown by 3.8% this financial year, extractive industries are expected to grow by 2.9% and manufacturing sector by 5.3% this financial year. Among sectors, the fastest growth is estimated in public administration, defense and other sectors at 9.1% this fiscal year, followed by 8.6% in construction and 7.3% in financial, real estate and professional services.
Private consumption is picking up, investments remain slow:
However, the rise in private final consumption expenditure to 7.3% in this fiscal year from 4% in FY24 is seen as the silver lining of the data, especially as rural consumption is experiencing a recovery after the good monsoons.
Dharmakirti Joshi, chief economist at Crisil, said the expected decline in food inflation will support discretionary spending, especially among lower-income households who have a higher proportion of food items in their consumption basket. He, however, pointed out that the urban economy is grappling with the twin challenges of high inflation and slowing credit growth.
Private sector investments, however, remained sluggish despite various measures put in place. Gross fixed capital formation is expected to grow by 6.4% in FY25, compared to 9% in the last financial year.
Growth outlook for FY26 darkens, additional measures needed:
Most analysts also expect growth to remain below 7% in FY26. “In the base case scenario, we expect the Indian economy to grow at 6.7% in next fiscal year, supported by public infrastructure spending, lower crude oil prices, a normal monsoon and monetary easing. That said, policymakers must remain vigilant in the face of escalating geopolitical and climate risks,” Joshi said.
Aditi Nayar, chief economist and head of research and outreach at ICRA, has forecast GDP growth in FY26 at 6.5% on the back of increased capital expenditure planned in the next budget. “In our view, GDP growth in FY2026 will be crucially influenced by global as well as domestic uncertainties, amid considerable base effects,” she noted.
She also noted that while MOSPI’s implied projections for the second half of FY 2025 appear reasonable, some sector numbers could point to higher growth figures in the second half of FY 2025. For example, rates growth rates in the mining, manufacturing and trading, hospitality and transport sectors are likely to exceed assumed rates, given the dissipation of the negative impact of excessive rains which impacted on growth in the second quarter of fiscal 2025, the expected increase in rural demand, and a favorable base effect in certain segments. “Similarly, on the expenditure side, GFCF growth is expected to prove higher than NSO’s implied estimate of 6.4% for the second half of FY2025, amid expectations of a resumption of public investment and some improvement in private investment activities, which were expected. was affected due to the elections in the first half of fiscal year 2025,” she said.
Experts also called on the government to continue taking measures to support the growth dynamic.
DK Srivastava, chief policy advisor, EY India, said the government would do well to continue to emphasize infrastructure expansion as central to its growth strategy amid continued global uncertainties.
Suman Chowdhury, chief economist and executive director of Acuité Ratings & Research, said a sustained recovery in domestic demand, however, will be the key to growth of over 7% in the medium term.
