The Ministry of Statistics and Programme Implementation (MOSPI) recently released the first advance estimate for FY25 GDP growth, pegging it at 6.4%. While this signals a deceleration compared to recent years, much of the slowdown is reflective of the first half of the financial year.

These preliminary estimates, based on data from the first 7-8 months, leave room for potential upside. Factors such as increased government spending, lower inflation, and rising consumer demand could positively impact growth in the latter part of the year. However, challenges like subdued credit growth, tight liquidity, and rupee depreciation present risks that require attention.

Despite these short-term concerns, India’s structural growth drivers remain robust—fueled by a young and growing population, rising investments, consumption, strong services exports, an evolving manufacturing sector, and growing digital penetration. India’s macroeconomic foundation continues to be resilient, and the country remains one of the fastest-growing major economies globally.

Key Insights from the Latest Data

1. Consumption Shows Signs of Recovery
   Private Final Consumption Expenditure (PFCE) is expected to grow by 7.3% in real terms for FY25, a notable rebound from 4.0% growth in FY24. This is driven by a recovery in rural demand, although urban consumption remains moderate. Favorable monsoons and declining inflation should further support consumption in the months ahead.
2. Investment Growth Slows
   Gross Fixed Capital Formation (GFCF) is projected to shrink by 6.4% in FY25, a sharp decline from 9% growth in FY24. A key factor here is reduced capital expenditure by the central government, especially in infrastructure. However, private-sector capital expenditure, especially by listed companies, has remained strong, and the real estate sector has witnessed robust household investments.
3. Decline in Imports Boosts GDP Growth
   Exports are expected to grow by 5.9% in FY25, while imports are anticipated to fall by 1.3%. This decline in imports has resulted in lower net imports, thus providing a positive impulse to GDP growth. The fall in crude prices has played a key role in reducing imports, and with commodity prices expected to remain benign, net exports are likely to continue contributing positively to India’s growth.
4. Services Sector Continues to Drive Economic Expansion
   The services sector remains a key growth engine, expanding at 7.2% YoY in FY25, though slightly lower than the 7.8% growth seen in FY24. While services exports continue to perform well, domestic demand in sectors like retail, hospitality, and financial services has been more sluggish, largely due to weakness in urban consumption.
5. Manufacturing Faces Global Slowdown
   India’s manufacturing sector is expected to grow by 5.3% in FY25, down from 9.9% in FY24. This deceleration reflects weaker demand, limited pricing power, and rising input costs. However, despite global manufacturing challenges, India remains one of the few countries where the Manufacturing Purchasing Managers’ Index (PMI) has stayed consistently above 50, indicating ongoing growth in the sector.
6. Liquidity Pressures and the Need for Monetary Support
   Recent months have seen the Reserve Bank of India (RBI) engage in aggressive forex interventions to defend the rupee, leading to tighter liquidity conditions. This has put additional pressure on the banking system, potentially dampening growth. However, the RBI has begun addressing this issue, with a recent Variable Rate Reverse Repo (VRR) operation aimed at easing liquidity. Further measures to improve liquidity are expected in the coming weeks.
7. Tax and GST Collections Indicate Economic Resilience
   Personal income tax receipts for the first seven months of FY25 have increased by 22% compared to the same period in FY24. Similarly, Goods and Services Tax (GST) collections grew by 8.5% year-on-year, reaching ₹1.82 lakh crore in November 2024, driven by strong demand during the festive season.

Conclusion: A Solid Foundation for Long-Term Growth

While India’s GDP growth for FY25 may show signs of slowing, the internal composition of the economy remains encouraging, with consumption and private sector investment on an upward trajectory. India’s long-term growth prospects are underpinned by a growing workforce, increasing capital formation, and productivity improvements, all of which should help support future corporate profits and market returns.

However, challenges related to credit growth, liquidity, and rupee depreciation require urgent attention. In the coming weeks, we will likely gain more insight into potential fiscal and monetary stimulus measures, with the Union Budget scheduled for February 1 and the RBI’s Monetary Policy Committee meeting from February 5-7. These measures could provide the support needed to ensure sustained economic growth in the long term.

India’s structural growth drivers remain firmly in place, and with the right policy interventions, the country is well-positioned to continue its growth trajectory.