As per the First Advance Estimates (FAE) of National Income released by the National Statistical Organization (NSO), India’s Real GDP growth for FY25 is projected at 6.4%, down sharply from 8.2% in FY24. While the growth estimate for FY25 is in line with our and market consensus estimates, it stands lower vis-vis RBI’s forecast of 6.6%.

Key highlights 

• The estimated deceleration in FY25 GDP growth is primarily on account of investments. This captures the moderation in budgeted government capex (growth in the general government capex is budgeted to grow at 20% in FY25, down from 27% in FY24). It is likely that the lack of broad-based recovery in private capex so far might have also contributed to the slowdown in investment.
• Beyond investments, there are notable improvements elsewhere. Private consumption growth is slated to recover to a 3-year high of 7.3%, while government consumption growth is expected to see a mild uptick. We believe signs of recovery in rural demand are buoying estimates of private consumption although there are signs of some weakness in urban demand. On the external front, the export of goods and services is estimated to clock a moderately higher expansion of 5.9% vs. 2.6% in FY24; a healthy growth in services exports is boosting overall export estimates.
• On the supply side, FY25 GVA growth is pegged at 6.4%, down from 7.2% in FY24.
  1. Barring the agriculture sector and public services, all other sub-categories are slated to show moderation in FY25. The bulk of the deceleration is expected to be on account of the manufacturing and mining sectors.
  2. The rise in input price inflation (we expect WPI inflation to average at 2.5% in FY25, up sharply from -0.7% in FY24) is likely to have played a major role in suppressing the value add in the industrial sector.
• Discrepancies shaved off 2.0 percentage points (ppt) from headline GDP growth, highlighting the volatility in data estimation (it had contributed 4.2 percentage points to headline GDP growth of 8.2% in FY24).
• Nominal GDP, which becomes a critical input for the budget arithmetic, is estimated to grow at 9.7%. This is lower than the FY25 Union Budget’s assumed growth of 10.5%. We estimate this to impart a minor statistical upside of 4 bps to the headline fiscal deficit ratio of 4.9% of GDP, ceteris paribus.

Inferences and Outlook

GDP growth for H1 FY25 stood at 6.0%. The estimated GDP growth for H2 FY25, based on NSO’s full-year estimate, comes at 6.7%. This shows the likelihood of traction in activity momentum after factors like weather disruptions and election-related slowdown in government spending weighed upon H1 FY25 GDP performance.

• The incremental improvement in H2 FY25 is expected to be led by government capital expenditure, private consumption, and exports to some extent.
• Notably, the NSO expects no incremental improvement in investments despite the anticipation of a step-up in government capex in H2 over H1 FY25.

On the supply side, the incremental improvement is expected to be led by the agriculture sector (with the incorporation of record-high kharif and rabi produce), manufacturing industries (amidst stability in input price inflation, festive demand, and rural recovery), and the finance, real estate, and business services sectors.

Overall, NSO’s FAE aligns with our expectation of a normalization in India’s growth momentum after the post-Covid surge. Contributing factors include delayed capital expenditure, sluggish industrial performance, and supply chain disruptions. Consumption showed weakness, with rural demand underperforming in Q1 and urban demand faltering in the second half due to slower hiring and wage growth. Despite inflation pressures, early signs of recovery emerged in Q3, supported by strong festive demand, rising digital transactions, and resilient rural demand.

On a net basis, we maintain our call of FY25 GDP growth of 6.4%. At this stage, we believe the risks are largely balanced for our forecast. There can be some immediate growth-boosting impact from an increase in welfare spending by several state governments, most of which is in the form of cash handouts - as per the RBI, the estimated multiplier for revex (excluding interest payments) by state governments is 1.43 with almost no lag in terms of impact. However, the NSO might not have priced in the spike in geopolitical and geoeconomic uncertainty post-Trump’s electoral victory in Nov-24. We need to remain watchful therefore, of the demand trends in the economy and assess further downside risks to the current forecast.

Says Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research, “The first advance estimates for India GDP growth in FY25 is in line with the revised forecasts of Acuité Research and highlights a material growth moderation from FY24. It is noteworthy that this estimate is 20 bps lower than the RBI forecast released in the MPC meeting of Dec’2024.

The slowdown which led to a disappointing 5.4% GDP growth in the second quarter of the fiscal, seems to have been partly carried forward to the third quarter of the year. Industrial growth has remained tepid so far, reflecting the absence of a robust broad-based demand in the economy. Nevertheless, there is a strong recovery in agriculture, with real GVA in the sector estimated to grow by 3.8%, a significant improvement from last year's 1.4% growth, indicating strong rural demand and better agricultural productivity this year, with a robust Kharif season and good Rabi sowing so far.

On the consumption front, private consumption is estimated to pick up strongly, growing by 7.3% in FY 2024-25, compared to 4.0% in the previous year. We believe this is largely driven by a step up in rural demand as urban demand has been lower than expectations amidst higher interest rates and a slowdown in retail loans. Investments (Gross Fixed Capital Formation) is estimated to slow down from 9% in FY24 to 6.4% in the current year; this highlights the risk of a material gap between the budgeted and the actual public capital expenditure as also the delays in proposed private capital expenditure due to increased global uncertainties and the volatility in the rupee.

We estimate GDP growth to improve to 6.7% and 7.0%, respectively, in Q3 and Q4, primarily driven by higher agricultural growth and a pickup in public capital expenditure. A sustained domestic demand revival, however, will be the key to 7.0%+ growth over the medium term.”  

Table 1: India’s GVA: Sectoral break-up

Table 2: India’s GDP: Sectoral break-u

Chart 1:  Sector-Wise Annual GVA growth: