India’s GDP growth (FY 25): Slow but steady

Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

India’s annual GDP growth rate for the years 2024–25 has been revised marginally upward from the earlier estimate of 6.4 per percent to 6.5 per percent over the previous year by the National Statistical Office (NSO) recently. The NSO has also released data pertaining to the Q4 performance of the economy for the same year. The estimates show that the GDP growth rate for Q4 has crossed the earlier expectation mark and reached 7.4 per percent over the last year’s level for the same period. It may be noted that earlier, RBI had pegged the GDP growth rate for Q4 FY25 at 7.2 per cent and the annual growth rate at 6.6 per percent. The estimated absolute value GDP for Q4 comes to Rs 51.35 lakh crore as against the Rs 47.82 lakh crore of Q4 of the year 2023-24. This growth in the fourth quarter of FY25, in fact, has pushed up the annual growth rate to a reasonable level of 6.5 per percent. In fact, the year started with a growth rate of 6.5 per percent during the April-June quarter, which, however, slowed down to 5.6 per percent in the second quarter and then somehow managed to come back to the level of 6.4 per percent in the third quarter. Thus, the growth path was quite inconstant and haphazard. Such an unpredictable growth rate is mainly due to the penetration of certain external factors, including inflation, food inflation, etc., which are destabilising the normal growth path. The annual volume of GDP for the year 2024-25 has arrived at Rs 187.97 lakh crore as against the previous year’s Rs 176.51 lakh crore. This 6.5 per percent growth rate happens to be the four-year low, and that too during the post-COVID period. Since the year 2021-22, the economy has been maintaining a steady growth trend in GDP, which has remained above 7 per percent at constant prices all along. In the years 2021-22, the growth rate was 9.7 per percent; in 2022-23, it was 7.6 per percent; and in 2023-24, it was 9.2 per percent.

Let us now examine the performances of the various components of GDP and their contribution to achieving this 7.4 per percent growth rate in Q4 FY 25. We will mainly focus on the estimates based on the constant prices. The demand side of the scale appears to be quite strong in the case of expenditure in terms of private final consumption (PFCE). The performance of the sector is quite good and, in fact, far better than last year’s performance in the first three quarters of the fiscal year. Easing of inflation and the gradually falling prices of food articles happen to be the main forces working behind these rising demands in the private final consumption. PFCE happens to be the most powerful component in the assessment of GDP, as it contributes to the composition of more than half of the GDP. In FY 25, it is estimated to contribute 56.5 per percent of the GDP as against 56.1 per percent the previous year. Compared to this, however, the results presented by the expenditure incurred due to government final consumption were sluggish. In fact, in the first and fourth quarters of the fiscal year, there was contraction, but in the third quarter, there was a sudden rise to the tune of 9.3 per percent, followed by a contraction again to the tune of negative-) 1.8 per cent. Such abrupt fluctuations are indicative of the fact that there are elements inherent in it that are capable of destabilising it internally. Failure of government welfare schemes meant for enhancing public consumption could lead to such a distressing situation. Government must, at the quickest possible time, examine the working of such schemes and correct the lacunae. GFCE usually takes care of 10 to 12 per percent of the GDP, but of late, the share is gradually shrinking. In FY24, it contributed 9.5 per percent of the GDP, which fell further to the level of 9.1 per percent in FY25.

The government’s efforts to invest more and more in the infrastructure segment in recent times have contributed fairly to the GDP component of gross fixed capital formation (GFCF). This is the second major component, which usually is responsible for contributing 30 to 35 per percent of the GDP. Government investment in the infrastructure sector has not been responded to commensurately by the private sector, resulting in sluggish growth in the area, especially in the first three quarters of the year 2024-25. In the first two quarters, the growth rate was to the tune of 6.7 per percent compared to the same period the previous year, but it fell to 5.2 per percent in the third quarter and finally showed a respectable performance of 9.4 per percent in the fourth quarter, spreading its impact on the whole of the GDP. But to make it sustainable, the government must come up with efforts to put in place a mechanism which could steadily generate the private sector’s contribution to the area. The estimated GFCF for FY 25 is expected to contribute 33.7 per percent of the GDP, which is marginally higher than the previous year’s 33.5 per percent.

On the supply side, the primary sector is performing well as a whole. Gross value addition in this sector comes to Rs 28.16 lakh crore as against the previous year’s Rs 26.97 lakh crore. The percentage change in GVA comes to 4.4 per percent compared to the previous year. The contribution of the primary sector to the GVA has marginally come down to 16.38 per percent from 16.70 per percent of the previous year. In this sector, agriculture, livestock, forestry, and fishing have done better than the mining and quarrying sector. The rate of increase in GVA in the allied mining and quarrying sector has in fact contracted to 2.7 per percent from 3.2 per percent of the previous year. Despite expecting much from the performance of the secondary sector, the government, however, has to remain content with its average performance. After a better performance in the first quarter with 8.6 per percent growth compared to the previous year, the subsequent two quarters could not maintain this pace, and the growth rate fell to 4.0 per percent and 5.1 per percent, respectively. The fourth quarter, however, kept alive the expectation, demonstrating its tendency to turn around with a growth rate of 6.8 per percent. The annual growth rate for FY25, however, was stranded at 6.1 per percent as against the growth rate achieved in the previous year of 11.4 per percent. The contribution of this sector to the GVA remained sluggish at 28.77 per percent as against the previous year’s 28.69 per percent. The performance of the tertiary sector was quite good. It has registered a growth rate of 7.2 per percent—the highest among the sectors. Its contribution to the GVA comes to almost 55 per percent as against 54.53 per percent of the previous year. Among the subsectors, a better achievement is visible in the financial and real estate sectors, contributing about 23.79 per percent to the GDP, followed by the trade, hotels, transport, etc. sector, contributing about 18.48 per percent to the GDP of FY 25. However, compared to the previous year, the growth rates of the above two sub-sectors were 7.2 per percent and 8.9 per percent, respectively. Under this backdrop, India’s growth prospects will be brighter considering the present behaviour of macroeconomic indicators. The present trend shows that there will be a further fall in the consumer price inflation. This will lead to a stabilisation process of the GDP components. The government’s best effort is required urgently in revamping the government’s final consumption expenditure sector. RBI has already assessed the GDP growth rate for 2025-26 at the same level as that of 2024-25, i.e., 6.5 per percent.