India’s real growth rate and the forecast

Context: The First Advance Estimates (FAE) of National Accounts for 2024-25 show
a real GDP growth of 6.4% and a nominal GDP growth of 9.7%. These numbers have
fallen short of the Reserve Bank of India’s revised growth estimate of 6.6% for
real GDP, as in its December 2024 monetary policy statement and 10.5% for
nominal GDP growth as in the 2024-25 Union Budget presented in July 2024. The
Gross Fixed Capital Formation rate at constant prices has ranged between 33.3%
and 33.5% during 2021-22 to 2024-25. Thus, it appears to have stabilised around
33.4%. It is expected to continue at this level in 2025-26.

Key points

·       Overview: The National
Statistics Office (NSO) has released the First Advance Estimates of Gross
domestic product (GDP) for FY 2024-25.

·       First
Advance Estimates of Annual Gross Domestic Product (GDP): The Advance
Estimates of GDP are indicator-based and compiled using the benchmark-indicator
method. Sector-wise estimates are compiled using indicators like Index of
Industrial Production (IIP), financial performance of listed companies,
agricultural and horticultural crop estimates, production targets of livestock,
fish production, and several other production and consumption indicators.

·       Highlights
of the report: Real GDP is estimated to grow by 6.4% in FY
2024-25, compared to 8.2% in FY 2023-24. Nominal GDP growth rate is 9.7% in FY
2024-25, compared to 9.6% in FY 2023-24. Real Gross Value Added (GVA) has grown
by 6.4% in FY 2024-25, compared to 7.2% in FY 2023-24. Nominal GVA growth rate
is 9.3% in FY 2024-25, compared to 8.5% in FY 2023-24.

·       Components
of GDP Growth: Private Consumption Expenditure (PFCE) Accounts for
around 60% of GDP.

Ø  Private Final
Consumption Expenditure (PFCE) Growth rate is 7.3% in FY 2024-25, compared to
4.0% in FY 2023-24.

Ø  Government
Spending (GFCE) - Accounts for 10% of GDP, but growth has been slow, but
growth rate is 4.1% in FY 2024-25, compared to 2.5% in FY 2023-24.

Ø  Gross Fixed Capital
Formation (GFCF) - This investment engine accounts for about 30% of
GDP. It has seen a growth of 6.3% this year but a slower 5.3% annual growth
since 2014.

Ø  Net Exports - India has a
trade deficit (more imports than exports), but the gap has reduced recently.

·       GDP
Growth Limitations: Sluggish private consumption growth is holding back
GDP growth. Investment in the economy has been tapering off, with businesses
hesitant to expand due to low consumption. India’s real GDP growth is below 5% annually,
far lower than the ideal growth needed to become a developed economy by 2047.

·       Conclusion
and Way Forward: The First Advance Estimates of GDP for FY 2024-25
indicate a moderate but steady economic growth amidst various global and
domestic challenges. These estimates provide crucial insights for policymakers
and stakeholders to navigate the economic landscape and make informed decisions
to foster sustainable growth and development.