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First official measure of the economy’s performance so far in 2024-25 Real GDP growth estimated at 6.7% between April and JuneThis is the lowest level in five quarters and also below the central bank’s estimate. The Reserve Bank of India (RBI) expects GDP growth of 7.2%. The RBI had earlier this month revised its forecast for Q1 to 7.1% from 7.2% for GDP growth to 2024-25, after last year’s 8.2% growth. The actual numbers are disappointing and reflect a clear cooling in economic momentum, although some base effects are at play. After a year of increasing divergence with GDP prints, gross value added (GVA) growth in the economy remained high at 6.8%. At the start of this fiscal year, great hopes were pinned on a normal monsoon, which would boost farm sector output and ease inflation, which could offset the weak rural demand and private consumption seen last year. Higher demand would boost the propensity of private firms to invest in new capacities and ease pressure on public spending to boost growth.
As things stand, the script is yet to play out completely. The prolonged general election has severely impacted public capital expenditure, and the government will have to redouble efforts to meet its expenditure targets. The good news is that private consumption expenditure has risen to a six-quarter high of 7.4%, thanks in part to a moderation in headline inflation. But food prices remain high. The monsoon has been better than last year, but has been a bit erratic and uneven in timing as well as spatially. Agriculture GVA growth has risen to a four-quarter high of 2%, but the next few weeks will determine whether the sector will bounce back in earnest (and food inflation will ease). Projections of above-normal rains in September could impact standing kharif crops. This is a key monitorable area for the RBI, whose independent monetary policy panel members have indicated a 1% GDP growth this year and next if interest rate cuts are delayed. India could still grow 6.5% to 7% this year, but most expect growth to slow to 6.5% in 2025-26, with the medium-term outlook hovering around this number. That’s too slow for easing. As top IMF official Gita Gopinath recently pointed out, policymakers need to urgently pursue meaningful reforms in all aspects of the economy and improve the efficiency of its institutions and judiciary. This is crucial to meeting expectations of boosting its growth potential and generating gainful employment for its youth fast enough for India’s demographics to pay dividends.
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