The economy will grow at 6.4% this fiscal 12 months, in accordance with the first flash estimates of national income released on Tuesday, worsening growth prospects for FY26 as well and raising fresh concerns for policymakers who’re in the strategy of drafting proposals for the Union Budget 2025- 26.
While private consumption is seen to have rebounded sharply and is estimated to grow by 7.3% this fiscal 12 months, challenges on private investment demand in addition to subdued government spending are expected to persist for the remaining months of this fiscal 12 months . Experts also identified risks arising from global uncertainty extending into FY26 as well.
According to estimates by the Ministry of Statistics and Program Implementation, Gross Value Added (GVA) increased by 6.4% in FY 2024-25 in comparison with a growth rate of seven.2% in FY 2023-24. The nominal gross value added showed a growth rate of 9.3% in FY 2024-25 as in comparison with a growth rate of 8.5% in FY 2023-24.
“The lower GDP growth in FY25 is the result of the cyclical slowdown in the Indian economy in the last three quarters. Besides, some factors influencing growth include strong base effect, general elections, weak private sector capital expenditure and tighter monetary and fiscal policies,” said Paras Jasrai, senior economic analyst at India Ratings and Research.
While agriculture grew by 3.8% this fiscal, mining and quarrying is forecast to grow by 2.9% and manufacturing by 5.3%. Among the sectors, the fastest growth is estimated in public administration, defense and other sectors at 9.1% this fiscal 12 months, followed by 8.6% expansion in construction and seven.3% expansion in financial services, real estate and skilled services.
Private consumption is growing, investment stays slow:
However, private final consumption expenditure growth of seven.3% this fiscal from 4% in FY24 is seen as encouraging to the data, especially as rural consumption is seeing a revival after good monsoons.
Dharmakirti Joshi, chief economist at Crisil, said the projected decline in food price inflation will support discretionary spending, especially amongst low-income households with a better share of food of their consumption basket. However, he identified that the city economy is scuffling with the double challenge of high inflation and slowing credit growth.
However, private sector investment stays sluggish despite the introduction of assorted measures. Gross fixed capital formation is estimated to grow by 6.4% in FY25 from 9% last 12 months.
Growth prospects for FY26 are poor, further motion needed:
Most analysts expect economic growth to stay below 7% in FY2026 as well. “In the next fiscal, we expect the Indian economy to grow at 6.7% in the base case, led by infrastructure spending public sector, lower oil prices, normal monsoons and easing monetary policy. That said, policymakers must remain vigilant in the face of growing geopolitical and climate threats,” Joshi said.
Aditi Nayar, Chief Economist and Director, Research and Outreach, ICRA has projected GDP growth in FY26 at 6.5% based on the expected increase in capital expenditure in the coming fiscal. “In our opinion, GDP growth in 2026 will be significantly influenced by global and internal uncertainty, with significant base effects,” she noted.
She also noted that while MOSPI’s implicit forecasts for the second half of fiscal 12 months 2025 appear reasonable, some sector data may point to higher growth in the second half of fiscal 12 months 2025. For example, growth rates in the mining, manufacturing and trading, hotels and transportation segments are more likely to exceed assumed rates, considering the unwinding of the unfavorable impact of excessive rainfall that weighed on growth in the second quarter of fiscal 2025, the expected increase in rural demand, and the favorable effect bases in some segments. “Similarly, on the expenditure side, gross appropriations growth is likely to be higher than NSO’s implicit estimate of 6.4% for the second half of fiscal 2025, amid expectations of an increase in general government capex and some improvement in private sector capex , which were negatively impacted by the elections in the first half of fiscal year 2025,” she said.
Experts also called for the government to proceed actions aimed at maintaining the growth dynamics.
DK Srivastava, Chief Policy Advisor, EY India, said the government would do well to proceed emphasizing infrastructure expansion as the core of its growth strategy amid continuing global uncertainty.
However, Suman Chowdhury, chief economist and executive director of Acuité Ratings & Research, said a sustained recovery in domestic demand could be key to growth of greater than 7% in the medium term.
