India’s GDP growth is expected to dip to 6.4% in FY25, marking its lowest level in four years, as per the government’s first advance estimates released on January 7.
The data suggests that GDP growth will fall below 7% for the first time in four years. Despite a strong performance in the first quarter of FY25, with growth at 6.7%, the second quarter saw a significant slowdown, dropping to a near two-year low of 5.4%.
Growth averaged 6% in the first half of the fiscal year and is projected to remain below 7% in the second half, based on the latest trends.
High-frequency indicators released last week provide a mixed picture. While services activity rose to a four-month high in December, manufacturing contracted to a 12-month low. Similarly, Unified Payments Interface (UPI) transactions maintained momentum, but Goods and Services Tax (GST) collections fell to a three-month low.
The Reserve Bank of India (RBI) anticipates GDP growth at 6.6% for FY25, while the government’s estimates range between 6.5% and 7%. However, a potential slump in the third quarter could exert further downward pressure.
On the nominal front, growth is expected to decelerate to 9.7%, raising concerns about fiscal deficit targets. If the government adheres to its fiscal deficit target, the fiscal deficit-to-GDP ratio may rise to 5%. Despite lower capital spending, experts predict the fiscal deficit could stay contained at 4.9%.