What’s coming for the Indian economy in 2025?

Even as India faces slowing economic growth, the projections pouring in from different schools of thought suggest that the year 2025 has not begun with a good note for the Indian economy

The National Statistical Organisation (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, implying that second half of the year will see a growth uptick to 6.7 per cent after a subdued sprint of 6.0 per cent in the first half. The projection also marks a four-year low and a sharp decline from the 8.2 per cent growth recorded in the previous year.

Forget GDP, even nominal GDP growth is expected to be lower than the estimated figure at 9.7 per cent, adding slippage risk of 0.1 per cent of GFD/GDP. Having said that, one can assume that advance estimates have a short shelf life and are prone to revisions.

Slower growth, as per Emkay Global, is estimated to be led by lower industry growth, primarily for manufacturing and mining, while services stays stable and agriculture sees an uptick.

On the supply front, the advance estimate implies a pick-up in agriculture with a strong kharif harvest and healthy rabi sowing. For industry, manufacturing is also expected to improve, after poor growth in first half, while electricity and utilities growth could stay stable, and construction growth could moderate while staying healthy. There is a solace in the form of the assumption that there could be a small uptick in services growth, led by improvement in financial and real estate services, while trade, hotels, transport and communication could stay stable.

However, analysts believe there remains downside risk to the economic growth, with several headwinds looming in the remaining part of the year. Operating profits for key sectors such as manufacturing could normalise toward the last quarter of the year with an unfavourable base effect, while financial services may see a slowdown as the effect of tighter lending standards flows through.

Moreover, we are likely to see private consumption remaining 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.

The country’s largest lender, State Bank of India (SBI) has also revised its forecast for India’s GDP growth in the current financial year to 6.3 per cent. The bank attributed the downgrade to multiple economic challenges, including a slowdown in lending and manufacturing.

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 highlighted that a general slowdown in aggregate demand is evident in the first advance estimates for GDP, which indicate tempered expectations for FY25.

Historically, the difference between RBI’s estimate and NSO’s estimate is always in the range of 20-30 bps and hence the 6.4 per cent estimate of FY25 is along expected and reasonable lines. “We, however, believe that GDP growth for FY25 could be around 6.3 per cent, with downward bias,” the SBI said in its GDP forecast.

According to the NSO’s data, agriculture and allied activities are projected to grow by 3.8 per cent in FY25, up from 1.4 per cent in FY24, driven by robust policy measures and public infrastructure development.

However, industry and services is expected to see a slowdown in growth compared to last year. Industry is expected to grow at 6.2 per cent in FY25, down from 9.5 per cent in FY24, while services is likely to grow by 7.2 per cent, a slight decrease from 7.6 per cent in FY24.

The report underlined the significance of government consumption, predicting nominal growth of 8.5 per cent and real growth of 4.1 per cent, which is expected to bolster the economy. However, the manufacturing and services sectors’ underperformance poses a substantial challenge to maintaining higher growth rates.

"For industry, manufacturing is expected to improve, after poor growth in first half, while electricity and utilities growth could stay stable, and construction growth could moderate while staying healthy"

Private consumption has emerged as a key driver of economic growth, with an anticipated real growth rate of 7.3 per cent in FY25, up from 4 per cent in FY24. This increase is supported by strong agricultural growth and lower food inflation. Despite this positive trend, investment growth has slowed to 6.4 per cent, down from 9 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 Report is, though the marked slowdown is evident in all subsegments of industry, it is expected to grow by 6.2 per cent during the year when compared to 9.5 per cent growth in the last year. Both manufacturing and mining are expected to decelerate in the year too.

Service sector, on the other hand, is likely to grow by 7.2 per cent, compared to a growth of 7.6 per cent a year ago.

In ICRA’s view, the GDP growth in the current year will be crucially influenced by global uncertainties as well as domestic uncertainties, amidst considerable base effects. Benefitting from an anticipated capex push in the upcoming Budget, we project the GDP growth at 6.5 per cent this year.

Going forward, for this fiscal, we can expect real GDP growth at 6.7 per cent. The most important monitorable, as per CareEdge, would be a more broad-based pick up in consumption demand, especially amid reports of slowing urban consumption.

The other critical aspect would be a meaningful pickup in private investment in the coming quarters. Additionally, monitoring headwinds to growth emerging from external sources like trade policy uncertainty, volatility in global markets, and geopolitical risks would be crucial.

Even the outlook of the country’s equity market doesn’t augur well for the economic growth of the country. HSBC Global Research has downgraded the Indian stock market outlook from ‘overweight’ to ‘neutral’. In a report, the global financial services firm said profits at India Inc appeared to have softened while valuations are elevated. After annualized growth of 25 per cent in recent years, profits appear to have softened.