Indian Economy Has To Reckon With Myriad Challenges In 2025

Even as India braces itself for entering the Top Three economies of the world after already have secured its place in the top five sometime back, the country is faced with the grim challenge of slowing economic growth. The NSO has pegged the first estimate of the year’s GDP growth at 6.4 per cent, which is less than the RBI’s projection at 6.6 per cent. Incidentally, this figure marks a four-year low and a sharp decline from the 8.2 per cent growth that was recorded in the previous year. Nominal GDP growth is also expected to be lower than the estimated figure at 9.7 per cent, adding slippage risk of 0.1 per cent of GFD/GDP. Slower growth, as per Emkay Global, is estimated to be led by lower industry growth, primarily for manufacturing and mining, while services will stay stable and agriculture sees an uptick. Moreover, there is also a possible downside risk to the economic growth, with several headwinds looming in the year.

Operating profits for key sectors like manufacturing could normalize toward the last quarter of the year with an unfavorable base effect, while financial services may see a slowdown as the effect of tighter lending standards flows through. Besides, private consumption may remain tepid – real urban wages have been steadily declining for over 18 months, and the fall in incomes has hit urban consumption with a lag. Thus, the growth outcome will see cyclical headwinds in the form of fading terms-of-trade benefits on lower commodity prices, tighter lending standards, weaker exports, and mildly slower GoI net spending growth for the year, despite increasing populist measures across the Centre and states in the second half. SBI’s revision reflects concerns over a slowdown in lending and manufacturing, coupled with the effects of a large base effect from the previous year. The bank pointed out that a general slowdown in aggregate demand was evident in the first advance estimates for GDP, which imply tempered expectations for FY25.

Private consumption has emerged as a key driver of the economic growth, with an anticipated real growth rate of 7.3 per cent in FY25, up from for per cent in FY24. This increase is supported by strong agricultural growth and lower food inflation. Despite the positive trend, investment growth has slowed to 6.4 per cent, down from nine per cent in the previous year, with no significant rebound expected in the second half of the financial year. A note of concern, as per Ecowrap is, is that though the marked slowdown is evident in all sub-segments of industry, it is expected to grow by 6.2 per cent during the year, compared to the 9.5 per cent growth achieved last year. In Icra’s view, the GDP growth in the next year will be influenced by global and domestic uncertainties, amidst considerable base effects. Benefitting from an anticipated capex push in the upcoming Union Budget, it projected the GDP growth at 6.5 per cent next year.