India’s GDP Growth Forecast for Financial Year 2024-25

India’s economy is projected to grow at a four-year low of 6.4 per cent in the financial year 2024-25. This estimate comes from the National Statistics Office based on data from the first part of the financial year. The growth rate is lower than previous estimates by both the Reserve Bank of India and the government. The slowdown is attributed to weak industrial performance and a decline in investment.

About GDP and Its Components

Gross Domestic Product (GDP) measures the economic performance of a country. It includes the total value of goods and services produced. GDP can be broken down into components – consumption, investment, government spending, and net exports. Each component plays important role in determining overall economic health.

Current Economic Context

The first advance estimates indicate slowdown in both the primary and secondary sectors, except for agriculture. The manufacturing sector’s growth is expected to decline sharply. In contrast, the services sector shows resilience, with a growth estimate of 7.2 per cent.

Sectoral Growth Rates

– Manufacturing – Expected to grow at 5.3 per cent, down from 9.9 per cent. – Mining and Quarrying – Projected growth of 2.9 per cent, a decrease from 7.1 per cent. – Agriculture – Growth is set to rise to 3.8 per cent from 1.4 per cent. – Services – Growth led by public administration and other services at 9.1 per cent.

Investment Trends

Investment growth, particularly from the corporate sector, remains subdued. Gross Fixed Capital Formation (GFCF) is expected to grow at 6.4 per cent compared to 9 per cent previously. This reflects a cautious approach from both public and private sectors.

Consumption Patterns

Private Final Consumption Expenditure (PFCE) is on the rise, estimated at 7.3 per cent compared to 4 per cent last year. This increase is driven by rural demand due to strong agricultural output. Urban demand, however, has weakened, influenced by stagnant wage growth.

Government Expenditure

Government Final Consumption Expenditure (GFCE) is anticipated to grow by 4.1 per cent. This increase supports overall economic growth and reflects higher government spending compared to the previous year.

Future Economic Outlook

While private consumption is expected to improve in the latter half of the financial year, investment growth is likely to remain stagnant. Analysts suggest that rural demand will boost consumption, while urban demand may continue to struggle.

Nominal and Per Capita Income

Nominal GDP is projected to grow by 9.7 per cent, slightly lower than last year. Per capita net national income is expected to rise by 5.3 per cent, indicating a marginal improvement in individual economic well-being.

Fiscal Implications

Despite lower GDP growth estimates, the government’s fiscal calculations remain largely unchanged. An increase in gross tax collections is expected to offset some of the impacts of lower nominal growth.

Global Economic Factors

Global economic conditions also influence India’s growth. Factors such as international demand and commodity prices play role in shaping domestic economic trends.

Key Takeaways

India’s GDP growth is slowing down, primarily due to weak industrial performance and investment. The services sector shows strength while agriculture is recovering. The government’s fiscal management appears stable despite lower growth projections.

Questions for UPSC:

1. Critically analyse the factors contributing to India’s GDP growth slowdown in the financial year 2024-25.
2. Estimate the impact of agricultural growth on overall economic performance in India.
3. Point out the differences in growth rates between the manufacturing and services sectors in India.
4. What is the significance of government expenditure in influencing economic growth? Discuss with suitable examples.

Answer Hints:

1. Critically analyse the factors contributing to India’s GDP growth slowdown in the financial year 2024-25.

1. Weak industrial performance, particularly in manufacturing and mining sectors.
2. Subdued corporate investment, with Gross Fixed Capital Formation growth declining.
3. Strong base effect from previous years affecting current growth comparisons.
4. Impact of general elections leading to cautious economic activity.
5. Monetary and fiscal tightening measures reducing liquidity and spending.

2. Estimate the impact of agricultural growth on overall economic performance in India.

1. Agriculture growth is projected to rise to 3.8%, contributing positively to GDP.
2. Rural demand from agricultural output supports private consumption growth.
3. Improved agricultural productivity can lead to enhanced food security and income levels.
4. Increased agricultural growth can stimulate related sectors like agro-processing.
5. Overall economic resilience can be boosted through agricultural stability and growth.

3. Point out the differences in growth rates between the manufacturing and services sectors in India.

1. Manufacturing growth is estimated at 5.3%, down from 9.9% in the previous year.
2. Services sector growth is projected at 7.2%, showing relative strength compared to manufacturing.
3. Public administration and defense services are leading with a growth rate of 9.1%.
4. Manufacturing faces challenges like sluggish demand and investment, impacting growth.
5. Services sector resilience indicates diversification and adaptability in the economy.

4. What is the significance of government expenditure in influencing economic growth? Discuss with suitable examples.

1. Government Final Consumption Expenditure (GFCE) is projected to grow by 4.1%, supporting overall demand.
2. Increased government spending can stimulate economic activity and create jobs.
3. Infrastructure investments by the government can enhance productivity and growth potential.
4. Fiscal measures can buffer economic downturns by maintaining demand during slow periods.
5. Examples include increased spending on public services and infrastructure projects boosting local economies.