The falling GDP of FY25

Udayan Hazarika

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

It was only five weeks ago that we received the news of falling GDP growth rates for Q2 of this fiscal year (2024-25) to the level of as low as 5.4 percent at constant prices, which was estimated as the lowest since the last seven quarters. The news was accepted with a heavy heart in the Ministry of Finance, and the finance minister tried to assure the Parliament (December 17, 2024) that “lower than expected GDP growth of 5.4 percent in the second quarter is a temporary blip and the economy will see healthy growth in the coming quarters.” However, the present worked-out figures for the estimated GDP growth rate for FY 25 do not show any turnaround; rather, they paint a bleak picture again, which speaks of a falling growth rate that is not anywhere near the last year’s GDP growth rate of 8.2 percent. The present rate estimated by the National Statistics Office under the Ministry of Programme Implementation shows a falling gross domestic product of India for the year 2024-25 (FY 25). The gross domestic product at constant prices (2011-12) has been estimated at Rs 184.88 lakh crore as against Rs 173.82 lakh crore provisionally estimated for the year 2023-24. The increment in the current year is equivalent to 6.4 percent. It may be noted that in November, the MOSPI estimated that the real GDP at constant prices for April-September (H1) will be Rs 87.74 lakh crore (47.45%), which is not even halfway to the present estimated GDP. Hence, in the last two quarters, the economy is to achieve the remaining growth rate of 52.55 percent, which will be a difficult task in the sense that third quarter performance usually slows down, although Q4 takes the lead. The present estimated real GDP is much lower than the provisional real growth estimated for the year 2023-24, which was 8.2 percent. Similarly, the estimated growth rate of the economy for the current year is also lesser than the estimates made by the Economic Survey 2023-24, wherein the growth rate was estimated at 6.5 percent to 7 percent, which could be said to be a realistic assessment. Despite this, the Reserve Bank of India initially made some enthusiastic estimates of GDP growth rate of 7.2 percent for FY 25. However, prior to the release of the assessment figure for Q2, many financial institutions have downsized the growth figure to 6.5 and/or 6.8 percent. It was only in December that the RBI downsized the economic growth rate to 6.8 percent for FY25. On the sectoral side of the issue, the estimated real gross value additions are worked out at Rs 168.91 lakh crore as against the last year’s provisional estimated amount of Rs 158.74 lakh crore with a growth rate of 7.2 percent.

Let us now examine the supply (expenditure) side of the real GDP. On the consumption front, the economy has shown reasonably high growth compared to last year. The private final consumption has increased from Rs 96.99 lakh crore in 2023-24 to Rs 104.05 lakh crore, giving a rise of 7.3 percent. Earlier, the half-yearly (H1) estimate for this front was worked out at constant prices and was Rs 49.39 lakh crore, showing a growth rate of 6.7 percent as against last year’s rate of Rs 46.29 lakh crore. Thus, the half-yearly estimates for the first half of the current year have already crossed more than halfway the mark (i.e., 51%). Now in the next two quarters, 49 percent of the estimated amount is to be achieved. Similarly, in the Government Final Consumption Expenditure (GFCE) front, marginal though it is, the growth rate has increased by 1.6 percentage points from 2.5 percent last year to 4.6 percent in the current year. In absolute terms, it has increased from the provisional estimates of Rs 16.33 lakh crore to Rs 17.21 lakh crore. The performance in the first half was already estimated at Rs 8.16 lakh crore, which is less than the halfway mark (47.41 percent) of the present estimates. Thus, the remaining 52.59 percent is to be achieved in the remaining two quarters. Considering that the RBI December 24 monetary policy has reduced the CRR (from 4.5 percent to 4.0 percent), which may result in more money in the market for spending, it is expected that this will automatically push up the government spending. But the system takes a considerable time between the action taken on a policy decision and having its impact in actuality. In the investment front, the gross fixed capital formation is lagging behind the provisional estimated growth rate of 9.0 percent of last year, registering a growth rate of 6.4 percent only in the current year. Of the estimated amount of Rs 62.01 lakh crore for the present fiscal year on this count, Rs 30.33 lakh crore, i.e., 49 percent, has already been achieved during the last half year. In the external sector, exports have been estimated to have a growth rate of 5.9 percent compared to 2.6 percent of the provisional estimates of last fiscal. Imports, although they have been estimated as falling marginally, but in absolute terms, there is actually a trade deficit of Rs 1.09 lakh crore.

In the demand front (production) of real GDP calculation, the agricultural sector has recovered with marginal improvement in the rate of growth from last year’s 2.1 percent to 3.6 percent of the current year. However, the mining and quarrying sector is still lagging far behind (2.9 percent) last year’s provisional estimated growth rate of 7.1 percent. Secondary sector performance is not as expected. There has been a fall in the growth rate from 9.7 percent last year to 6.5 percent in the current year. Much of this fall is contributed to by the manufacturing sector, which fell from 9.9 percent of the last fiscal to 5.3 percent in the current fiscal. Even the construction sector is also falling from 9.9 percent of last year to 8.6 percent in the current year. The tertiary sector also registered a marginal fall. However, one of its components, namely public administration, defence services, etc., which rose to 9.1 percent in the current year, was at the level of 7.8 percent in the last year. Otherwise, there is a fall in the case of other components like the trade & hotel sector and the financial real estate sector. Thus, on the whole, the sectoral contribution to the GVA shows that agriculture remained at 16.22 percent, industries contributed 28.75 percent, and finally the tertiary sector contributed 55.03 percent. These rates are subject to change depending on the further estimates (second and third advanced estimates) and provisional estimates till we receive the actual data for GDP—sometime in 2026.