India’s Real Gross Domestic Product (GDP) is projected to grow at a four-year low of 6.4% in the current financial year, FY25. The growth estimate, which comes from the first advance estimates released by the National Statistics Office (NSO), reflects a slowdown primarily driven by weak industrial performance and a lack of momentum in investments. The figure is lower than earlier growth projections by both the Reserve Bank of India (RBI) and the government, which had forecast growth rates of 6.6% and 6.5-7%, respectively.
The decline in GDP growth marks a significant departure from the robust economic performance that India had seen in previous years. Industrial growth has particularly underperformed, with manufacturing activities facing headwinds due to various domestic and global challenges. The manufacturing sector, once seen as a key driver of India’s growth, has struggled with sluggish demand, disrupted supply chains, and rising input costs. As a result, the sector’s contribution to GDP has been notably lower than expected.
Similarly, investment has been another weak spot in the economy. While the government has made efforts to boost infrastructure spending, private sector investment has failed to pick up pace. Corporate investments remain cautious, and despite policy measures aimed at improving the ease of doing business, businesses continue to face challenges such as high interest rates, regulatory uncertainties, and slow demand. These factors have contributed to a less-than-expected performance in capital formation, which is essential for long-term economic growth.
The first advance estimates of GDP for FY25 are based on data collected from the first seven to eight months of the ongoing financial year. These estimates are crucial for policymakers, as they provide a broad overview of the country’s economic performance and help shape the contours of the Union Budget for the following fiscal year. With the Union Budget for FY26 set to be presented in Parliament on February 1, these early estimates will influence government decisions on fiscal policies, expenditure priorities, and revenue projections.
While the overall GDP growth forecast remains subdued, experts anticipate that consumption may see an uptick in the second half of FY25. As the year progresses, household spending is expected to pick up, driven by higher disposable incomes, festive demand, and government measures to stimulate consumption. However, even with the expected boost in consumption, it remains unlikely that investment will show substantial recovery. Investment is projected to remain flat, with a combination of global uncertainties, inflationary pressures, and geopolitical risks weighing on investor sentiment.
The GDP growth of 6.4% represents a substantial decline from the previous fiscal year, when India managed to sustain a higher growth rate despite various challenges. Last year, the economy experienced a stronger performance, propelled by a recovery in services and robust exports. This year’s slowdown highlights the vulnerability of the Indian economy to external factors, including inflationary pressures, weak global demand, and supply chain disruptions.
The Indian government faces a delicate balancing act as it prepares for the upcoming budget. Policymakers will need to address the economic slowdown while ensuring that fiscal measures do not exacerbate inflation or increase the country’s fiscal deficit. While consumption may provide a short-term boost, the long-term economic outlook hinges on the revival of investment and industrial activity. Without a significant rebound in these areas, sustaining high growth rates will be challenging.
Despite the weak GDP growth projections, there are some positive aspects of India’s economy. The services sector continues to perform relatively well, with sectors like IT, finance, and healthcare showing resilience. Exports of services have been strong, and there is growing demand for India’s digital offerings in the global market. This growth in the services sector offers hope that the country can continue to maintain its position as a leading player in the global economy, even as industrial growth faces challenges.
As India confronts a lower-than-expected GDP growth in FY25, the government’s focus will likely shift towards addressing the underlying issues that have hindered economic recovery. To counter the sluggish industrial growth, policymakers may introduce measures to incentivize businesses, especially in the manufacturing and infrastructure sectors. The government may provide additional tax relief or create favorable conditions for the private sector to stimulate investment. Additionally, improving the ease of doing business by streamlining regulations and promoting public-private partnerships could encourage businesses to invest more heavily in the country.
Another important factor contributing to the subdued GDP growth is global uncertainty. Geopolitical tensions, such as trade disruptions and fluctuations in commodity prices, continue to impact global supply chains, affecting India’s ability to access critical raw materials and intermediate goods at competitive prices. The government may need to bolster its foreign trade policies to mitigate the impact of global slowdowns and attract foreign investments that will support both the industrial and services sectors.
Moreover, the recent challenges have underscored the need for India to strengthen its focus on digital transformation and innovation. By fostering the growth of technology-driven sectors like fintech, e-commerce, and renewable energy, the country can diversify its economic base and create new avenues for growth. Investment in green technologies, electric mobility, and sustainable energy solutions may not only help meet domestic energy demands but also attract global investment, which would improve the country’s industrial landscape over time.
The services sector continues to be a pillar of resilience in the Indian economy, particularly in information technology (IT) and business process outsourcing (BPO). However, the government must ensure that the sector remains competitive in the global market. Supporting research and development in emerging technologies, such as artificial intelligence, machine learning, and data analytics, could help India maintain its position as a global leader in services. Encouraging the growth of technology startups and fostering innovation hubs across the country will play an important role in driving future growth.
Additionally, despite the current downturn in manufacturing and investment, there are signs that India’s economic fundamentals remain strong. The country’s young, tech-savvy workforce, large consumer market, and growing digital infrastructure are factors that will likely serve the nation well in the coming years. With the right mix of policies and reforms, India could regain its economic momentum and potentially surpass the 6.4% growth forecast.
The Reserve Bank of India (RBI) will also play a critical role in ensuring macroeconomic stability. As inflationary pressures persist, the central bank’s decisions on interest rates and liquidity management will be crucial in supporting growth without fueling excessive inflation. At the same time, RBI’s measures to promote financial inclusion and digital banking services will further enhance the accessibility of financial resources to underserved communities, fostering economic growth at the grassroots level.
As the country grapples with these challenges, the Union Budget for FY26 will be a key moment for the government to implement its strategy for recovery. In addition to fiscal stimulus measures, budget proposals could include targeted infrastructure projects, enhanced social welfare schemes, and more robust support for industries that have the potential to drive long-term growth. The government’s commitment to reforms will be essential in steering India back to its growth trajectory.
Ultimately, while the short-term economic outlook may seem uncertain, India has the potential to navigate through this phase with the right combination of policies, investments, and structural reforms. By focusing on critical sectors, such as manufacturing, technology, and sustainability, India can set itself on a path to resilient growth, even in the face of global economic headwinds.