As GDP estimates go, the National Statistics Office’s First Advance Estimates (FAE) serve a limited purpose and is subject to revisions. Prepared mainly to aid the Budget exercise, they are based on an extrapolation of listed companies’ performance and high-frequency indicators in the first six months, which in the current fiscal year were impacted by general elections. Yet, the FAE estimates may not be too off the mark going by high-frequency indicators such as GST collections, e-way bills, automobile sales, etc., all of which present a mixed picture in the post-election months.

With the fisc in consolidation mode, government capex lagging targets, the private sector dragging its feet on investments and Reserve Bank of India maintaining a tight hold on monetary and credit conditions, it is not surprising that real GDP growth should slow sharply from 8.2 per cent in FY24 to 6.4 per cent in FY25. The FAE points to manufacturing (5.3 per cent in FY25 compared to 9.9 per cent in FY24), mining and quarrying (2.9 per cent versus 7.1 per cent) and trade, hotels, transport and communications (5.8 per cent versus 6.4 per cent) seeing the most deceleration.

Yet, there are bright spots. For one, it is good to see Private Final Consumption Expenditure (PFCE) expanding at 7.3 per cent in FY25 after growing at just 4 per cent — half the real GDP growth — in FY24. Should PFCE growth sustain at these levels, it could provide demand visibility to consumer-facing companies which may dust off their capex. The uptick in Government Final Consumption Expenditure from 2.5 per cent to 4.1 per cent is also positive, given that the Centre seems to be running up against hurdles in meeting its capital spending targets for the year. Two, with agricultural growth expected to rebound from 1.4 per cent in FY24 to 3.8 per cent in FY25, rural incomes will likely receive a boost and spur consumption. Improvement in rural demand has already been evident from two-wheeler and FMCG sales in recent months. The gloomy commentary from listed consumer companies seems to mainly reflect slower spending by urban consumers. Three, exports are estimated to perform reasonably well despite the tough global climate, delivering 5.9 per cent growth in FY25 against 2.6 per cent last year.

The main pain-point for the economy though seems to lie in the manufacturing sector, which is critical for jobs and income growth. Manufacturing is set to decelerate sharply from 9.9 per cent growth in FY24 to 5.3 per cent this fiscal. While services have sustained 7-9 per cent growth, manufacturing has charted a zig-zag path after Covid. This is despite the Centre showering the sector with corporate tax cuts and Production-Linked Incentives. It may now be time for the Centre to examine a consumption boost. A nominal GDP growth of 9.7 per cent against the 10.5 per cent budget assumption raises the bar on attaining fiscal deficit targets, but sedate expenditure growth so far suggests no material overshoot, or fiscal worries.