India's GDP Growth Projections and Economic Outlook
The chas projected India's GDP growth for 2024-25 at 6.5 per cent, slightly higher than its initial 6.4 per cent estimate but less optimistic than forecasts from other forecasters and the Reserve Bank of India (RBI). This projection aligns with the pre-pandemic decadal trend growth rate following an average growth of 8.8 per cent from FY 2021-22 to 2023-24.
Factors Influencing Growth
- The recovery from the Covid-19 pandemic was bolstered by infrastructure development, digitalisation, and strengthened bank balance sheets.
- Domestic factors are expected to drive GDP growth in FY26, despite global uncertainties like tariff wars.
- The investment-to-GDP ratio is stabilising after an initial surge.
Global Economic Context
- The Organisation for Economic Cooperation and Development revised the global GDP growth forecast for FY25 to 3.1 per cent from 3.3 per cent.
- World trade is decelerating due to increasing protectionism and insular industrial policies.
- Advanced economies face upward revisions in inflation forecasts, suggesting more restrictive monetary policies.
- The US Federal Reserve has paused rate cuts, with only one anticipated this year.
India's Economic Resilience
- Services Exports: The share of services in India's total exports increased to 47 per cent in FY25 from 31 per cent in FY12, offering resilience against global trade disruptions.
- External Vulnerability: Indicators remain robust with a manageable current account deficit, low external debt servicing, ample forex reserves, and a growth premium over other large economies.
- Inflation and Borrowing Costs: Expected easing of food inflation and reduced borrowing costs supported by RBI's rate cuts.
Investment Trends and Challenges
- Investments are expected to maintain their GDP share in FY26, with the government and household sectors leading.
- Private corporate sector investments remain tepid despite better financial flexibility.
- The Centre anticipated a 10.1 per cent growth in capital expenditure, contingent on the implementation of shovel-ready projects.
Strategic Economic Recommendations
- India's GDP growth of 6.5 per cent positions it as a leader among large economies.
- Domestic factors will gain importance as global protectionism rises.
- Economic reforms to address domestic bottlenecks are crucial, including enhancing the ease of doing business by reducing the compliance burden and simplifying regulations.
- Forging trade alliances and leveraging supply chain shifts due to trade disruptions are recommended actions.
