Opinion GDP slowed down this year. Will next year be better?

The Indian economy is expected to grow at 6.4 per cent in 2024-25 as per the first advance estimates released by the National Statistics Office. Considering that the economy grew at 6 per cent in the first half of the year, these estimates imply that the momentum which had dipped in the second quarter — GDP growth had slumped to 5.4 per cent — is expected to pick up pace in the second half of the year, with growth likely to average around 6.7 per cent. The NSO’s estimate is marginally lower than the RBI’s revised forecast. In the last monetary policy committee meeting, the central bank had lowered its growth estimate for the full year to 6.6 per cent, pegging the economy to grow at 6.8 per cent in the third quarter and 7.2 per cent in the fourth quarter. However, this latest estimate also implies that growth this year is likely to be 1.8 percentage points lower than the 8.2 per cent registered last year.

The disaggregated data shows that the main drag to growth comes from the industrial sector, manufacturing in particular. The sector is pegged to grow at just 5.3 per cent this year, down from 9.9 per cent last year. Slower growth is also expected in construction and the electricity, gas and water supply segments. The services sector is also likely to witness a deceleration. On the other hand, private consumption is projected to accelerate. This is at odds with what is being said so far by sections of India Inc who have voiced concerns about spending, especially in urban areas. In rural areas, however, household consumption is likely to get a boost from healthy kharif production, and the prospects for the rabi crop are also promising. Investment activity, though, has moderated. Private investment remains subdued, and central government capital expenditure, which has been a big driver, is actually 12 per cent lower than last year. In fact, there is the possibility of the Centre’s capex undershooting its budgeted target.

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The first advance estimates are based only on data for seven to eight months of the year. Thus, a more precise picture of the economy will only emerge in the months ahead when more data is available. However, as per these advance estimates, nominal GDP growth is likely to be 9.7 per cent this year. This is lower than the Union budget’s estimate of 10.5 per cent. It also implies that this will be the second straight year when nominal GDP growth will be less than 10 per cent. This will have implications for
the government’s debt-deficit dynamics. The question, now, is: Considering the global and domestic uncertainties, what will be the upcoming budget’s figure for growth in the next year?