The first official assessment of the economy’s performance in 2024-25 pegs real GDP growth at 6.7% from April to June, a five-quarter low and below the central bank’s prediction. The Reserve Bank of India (RBI) reduced its Q1 GDP growth forecast from 7.2% to 7.1% earlier this month, following last year’s 8.2% increase. Despite certain base effects, the actual statistics indicate a slowing in economic momentum. The economy’s Gross Value Added (GVA) increased by 6.8%, following a year of worsening divergences with the GDP.
At the start of the fiscal year, expectations were high for a regular monsoon to enhance agriculture sector output and reduce inflation, perhaps improving rural demand and private consumption. Increased demand encourages private firms to invest in additional capacity, relieving pressure on governmental spending to support growth. This year’s growth is supported by the government’s decision to increase capital expenditure by 17% to ₹11.11 lakh crore while awaiting the outcome of the narrative.
Currently, the script is not complete. The delayed general election has hindered public investment, requiring the government to increase spending efforts to reach its targets. Private consumption spending increased to a six-quarter high of 7.4%, driven by lower headline inflation. Food prices remain high. The monsoon has improved compared to previous year, but it has been inconsistent and uneven in both time and space. Farm GVA growth has reached a four-quarter high of 2%. However, the next several weeks will determine if the industry will fully recover (and food inflation will decrease).
Above-average rainfall in September could have an impact on standing crops. The RBI’s independent monetary policy council predicts a 1% GDP loss this year and next if interest rate decreases are postponed. India may increase 6.5% to 7% this year, but growth is expected to slow to 6.5% in 2025-26, with a medium-term potential of about that amount. This is uncomfortably sluggish. According to top IMF official Gita Gopinath, authorities must prioritize economic reforms and increase institutional and judicial efficiency.
This is crucial for accelerating India’s growth potential and creating job opportunities for its youth, allowing the country to benefit from its demographics.
