The National Statistical Office's (NSO’s) first advance estimate (FAE) for FY2024-25 projects India's real gross domestic product (GDP) growth at 6.4%, significantly slower than the 8.2% last fiscal. According to CRISIL Ratings, fiscal consolidation, elevated interest rates and prolonged high food inflation weighed down the economy this year.
In a report, the rating agency says, "Weak investments amid reduced government capital expenditure (capex) and subdued private investments are the primary reason for the deceleration. However, private consumption is expected to rise significantly after last fiscal's weak show."
According to the report, on the demand side, private consumption is expected to emerge as the primary driver of growth at 7.3% year-on-year (y-o-y) this fiscal against 4.0% last fiscal, spurred by a recovery in rural demand because of better agricultural prospects. As a result, private consumption's share in GDP is estimated at 56.3% this fiscal, compared with pre-pandemic decadal average of 56.1%, a normalisation after the drop witnessed last fiscal, CRISIL says.
Investments, as measured by gross fixed capital formation, are estimated to moderate at 6.4% vs 9.0% because of weaker government capex and an insufficient pick-up in private investment. Government consumption expenditure is also expected to be higher this year at 4.1% against 2.5% in the year-ago period.
Even as real GDP moderated this fiscal, CRISIL says nominal GDP has inched up to 9.7% from 9.6% the previous year. The rising GDP deflator, at 3.2% compared to7 1.3% in FY23-24 is behind the uptick in nominal GDP. WPI (wholesale price index) inflation has picked up considerably this fiscal at 2.1% in April-November against -1.3% in the corresponding period last fiscal. This, in turn, has driven the uptick in the GDP deflator this fiscal. However, the nominal GDP estimate is lower than 10.5% estimated in the Union Budget 2024-25.
According to CRISIL, consumption improved on a low base, as it had grown less than half the pace of GDP growth last fiscal. Growth became more balanced as rural likely fared better than urban. However, demand was constrained by tighter credit conditions and high food inflation, particularly in the urban areas.
"That said, the FAE indicates quicker growth in the second half. Agricultural growth is likely to hasten as higher reservoir levels also bode well for rabi output. This should provide a fillip to farm incomes and rural consumption. Higher agriculture production is likely to ease the pressure on food inflation in the remainder of this fiscal, which will boost discretionary consumption. The festival and wedding season is likely to buoy consumption in the second half. However, investment's contribution is not expected to increase as private investment remains sluggish," the rating agency says.
Going forward, CRISIL expects GDP growth to improve to 6.7% next fiscal. It says, "The Reserve Bank of India's (RBI) rate cuts, lower crude oil prices and a normal monsoon are expected to support growth. While government capex will remain supportive, continued fiscal consolidation implies that investment prospects hinge on a sustained revival in private capex."
"Based on the FAE, GDP growth should pick up in the second half, registering a 6.8% rise compared with 6.0% in the first half. Consumption is expected to improve in the second half, but not investment," the rating agency says.
The NSO estimates gross value added (GVA) to have grown 6.4% this fiscal compared with 7.2% last fiscal. The abnormal gap between GDP and GVA growth last fiscal is getting normalised. Last year. GDP had grown at 8.2% and GVA growth was 7.2%.