Indian economy is estimated to grow at 6.4 per cent during the current fiscal (FY25), marking a four-year low and a sharp decline from the 8.2 per cent growth recorded in FY24, according to first advance estimates released by the government on Tuesday. Estimation of lower growth is on the back of a slowdown in all segments of industry and services.

Estimate for FY25 is lower than RBI’s revised estimate of 6.6 per cent and Finance Ministry’s own monthly economic review projection of 6.5 per cent.

Despite a slowdown in real GDP growth and nominal GDP growth remaining almost stagnant, per capita nominal GDP is expected to increase significantly in FY25, by ₹35,000 more than FY23.

Industrial growth

Farm sector is expected to show a better performance with growth pegged at 3.8 per cent during the current fiscal as against 1.4 per cent in previous year. However, industrial growth is expected to dip to 6.2 per cent as against 9.5 per cent and service sector is likely to grow by 7.2 per cent as against 7.6 per cent.

According to D K Srivastava, Chief Policy Advisor at EY India, the first advance estimates show a nominal GDP (the total value of all goods and services produced in a country over a period of time, calculated using current market prices) growth of 9.7 per cent. It is lower than 10.5 per cent for nominal GDP growth as per the 2024-25 Union Budget presented in July 2024.

“Compared to the budgeted magnitude of nominal GDP, the shortfall in nominal GDP as per the FAE would amount to about ₹2.26 lakh crore. This would translate to a lower gross tax revenue (GTR) for the government of ₹2.32 lakh crore at the budgeted GTR buoyancy of 1.03. However, part of this shortfall may be made up by an increase in buoyancy,” he said.

Meanwhile, the key concern is lower growth in investment which is estimated to moderate to 6.4 per cent in FY25 from 9 per cent in the previous year. The expected pick-up during the second half has apparently not happened.

Rajnai Sinha, Chief Economist with CARE, said investment growth in H2 (October-March) is estimated to remain around the same as H1. This means private investment is not picking up meaningfully.

Private consumption

“The positive aspect is that private consumption is estimated to show a strong growth of 7.3 per cent in FY25 compared to a feeble growth of 4 per cent in FY24. Consumption growth is estimated to accelerate in H2 compared to H1. Healthy agri growth and likely moderation in food inflation should help boost consumption in the months to come. Sustained consumption growth will also help pull in private investment,” she said.

The big question is about the growth momentum in the next fiscal. Aditia Nayar, Chief Economist with ICRA, said GDP growth in FY 26 will be crucially influenced by global uncertainties and domestic uncertainties, amidst considerable base effect. “Benefitting from an anticipated capex push in the upcoming Budget, we project the GDP growth at 6.5 per cent in FY26,” she said.

A research report by HDFC Bank said: “We expect GDP growth to rise to 6.7 per cent in FY26 from 6.4 per cent in FY25 driven by a further recovery in consumer demand as food inflation moderates, RBI delivers rate cuts and healthy agriculture performance boosts rural incomes.”