GDP growth pegged at 6.4% in FY25, dampens prospects for FY2026.

The economy is expected to grow by 6.4% this fiscal year according to the first advance estimates of national income released on Tuesday, dampening growth prospects for FY26 as well and raising new concerns for policymakers who are in the midst of preparing proposals for the European Union. Budget 2025-26.

While private consumption is seen to have made a sharp recovery and is expected to grow by 7.3% this fiscal year, private investment demand challenges as well as weak government spending are expected to persist during the remaining months of this fiscal year. Experts have also pointed out risks from global uncertainties extending into FY26 as well.

According to estimates from the Ministry of Statistics and Program Implementation, gross value added increased by 6.4% in FY 2024-25 compared to a growth rate of 7.2% in FY 2023-2024. Nominal gross value added showed a growth rate of 9.3% in FY 2024-25 compared to a growth rate of 8.5% in FY 2023-2024.

“The lower GDP growth for FY25 was a result of cyclical slowdown in the Indian economy in the last three quarters. Apart from this, some of the factors affecting the growth were strong base effect, general elections, weak private sector capex, monetary and fiscal tightening.” .

While agriculture is expected to grow by 3.8% this fiscal year, the mining and quarrying industry is expected to grow by 2.9% and manufacturing by 5.3% this fiscal year. Among sectors, public administration, defense and other sectors are expected to grow fastest at 9.1% this fiscal year, followed by 8.6% growth in construction and 7.3% expansion in financial, real estate and professional services.

Private consumption rebounds, investment remains sluggish:

However, the rise in private final consumption expenditures by 7.3% this fiscal from 4% in FY2024 is seen as a silver lining in the data, especially with rural consumption witnessing a recovery after a good monsoon.

Dharmakirti Joshi, chief economist at Crisil, said the expected decline in food inflation will support discretionary spending, especially among lower-income households who have a higher proportion of food in their consumption basket. However, he noted that the urban economy faces the dual challenge of high inflation and slow credit growth.

However, private sector investment remained slow despite various measures taken. Gross fixed capital formation is expected to grow by 6.4% in fiscal year 2025 compared to 9% in the last fiscal year.

Growth prospects in FY2026 are bleak, and further measures are needed:

Most analysts expect growth to remain below 7% in fiscal 2026 as well. “We expect the Indian economy to expand by 6.7% in the next fiscal year in the baseline scenario, supported by public infrastructure spending, lower crude oil prices, a normal monsoon, and monetary easing. However, policymakers must remain vigilant in the face of geopolitical risks.” and rising climate.

Aditi Nayar, Chief Economist and Head, Research and Outreach, ICRA, forecast FY26 GDP growth of 6.5% based on an expected increase in capital expenditure in the upcoming Budget. “In our view, GDP growth in fiscal year 2026 will be decisively affected by global uncertainty as well as domestic uncertainty, amid significant base effects,” she noted.

She also noted that although MOSPI’s implied forecast for the second half of FY2025 appears reasonable, some sector figures could point to higher growth rates in the second half of FY2025. For example, growth rates are likely to exceed In the mining, manufacturing, trade, hotel, and transportation sectors, the assumed rates are due to the dissipation of the negative impact of excess rainfall that affected growth in the second quarter of fiscal year 2025, the expected rise in demand in rural areas, and the impact of the base Favorable in some sectors. “Similarly, on the expenditure side, gross fixed capital growth is likely to be higher than the ONS’ implied estimate of 6.4% for the second half of FY25, amid expectations of higher government capital expenditure and some improvement in private capital expenditure activity, which was : “We were negatively impacted by the elections in the first half of fiscal year 2025.”

Experts also called on the government to continue measures to maintain growth momentum.

DK Srivastava, senior policy advisor at EY India, said the government would do well to continue to focus on infrastructure expansion as the core of the growth strategy amid continuing global uncertainties.

Suman Chowdhury, chief economist and CEO of Acuité Ratings & Research, said a sustained domestic demand recovery will be key to achieving 7%+ growth in the medium term.