India's Q1 GDP numbers for FY25 are to be released, and red flags are raised over a notable moderation of economic growth. According to the average of analysts surveyed by Reuters, the growth rate of the Indian economy is likely to slow to around 7% for the April-June quarter from 7.8% in the previous March quarter. This slowing down is mainly attributed to reduced government expenditure after the recent Lok Sabha elections. Nevertheless, India is going to rise up to the responsibility and continue being the world's fastest-growing major economy.
GDP Projections and Estimates
Moody's Ratings has revised its growth projections for India with an upbeat view of the country's economy. The revised forecast estimates a 7.2% growth for the calendar year 2024 and 6.6% for 2025. This revision indicates that Moody's is fairly confident about India's growth trajectory on the back of a broad-based expansion across various sectors.
Ernst & Young (EY) too has joined in, estimating that India's real GDP in fiscal year 2025 would grow somewhere between 7% and 7.2%. This forecast is aligned with optimism exhibited by Moody's and denotes the intrinsic resilience of India's economic performance, though it is expected to witness slowing in the short term.
Read more about revised forecast by Moody's.
Top 10 Fastest Growing Major Economies
In the latest ranking by EY, India has outranked the United States and China as the fast-growing economy. The ranking was based on the International Monetary Fund, IMFEvaluating the top 25 largest economies in nominal GDP. India's strong performance in this list projects its significant role in the global economic landscape.
To view a full list of the top 10 fastest-growing major economies in 2024, read EY's Global Economic Outlook.
Key Economic Drivers and Developments
- Rural Demand Resilience: Propped up by better-than-usual monsoon rains, according to the latest reports by Moody's, rural demand has witnessed a strong pickup on the back of positive agricultural dynamics. Given this encouraging trend in agricultural production, economic growth will find support and simultaneously bolster consumption in rural India.
- Rise in Capital Expenditure: The Reserve Bank of India has estimated a sharp 54% rise in private capital expenditure in the current fiscal year. This is encouraged by increasing capacity utilization, improved business sentiment, and the continuous thrust of the government on infra investment. In fact, this capital expenditure is expected to keep the momentum of economic growth going on for a longer term. Check out the forecast on capital expenditure by RBI here.
- Digitalization and Infrastructure Development: Digitalization is rapidly setting the pace for India's economic transformation. The government's investments in digital public infrastructure—under identity management, payment solutions, and data management—bring efficiency into the economy. This gets further supported with an increase in the reach of telecommunication and internet services, along with easy availability and reduced prices of data consumption.
For details about Digital Infrastructure in India, make reference to the Digital India Initiative official website: Digital India Initiative.
- Stronger External Position: There has been an improvement in India's external position, as shown by a significant contraction in the current account deficit, said the Ministry. Importantly, during Q4:2023-24, the current account recorded a modest surplus for the first time in ten quarters. This turnaround is mainly on the back of strong exports of services and heavy inflows of remittances.
Read about India's current account surplus, here: https://www.thehindu.com/business/Economy/india-records-current-account-surplus/article66678665.e
However, in this process of economic journey, there are many challenges that India is yet to mitigate. The most significant of these are the problems of inadequate employment opportunities and the struggle with making growth more inclusive. These circumstances are also a factor that influences wages and consumption of households at the lower levels, hampers investment by the private sector, and hamstrings the economy.
A recent World Bank report underlines that it would take India about 75 years to achieve a quarter of the U.S. per capita income. This projection shows that demographic, ecological, and geopolitical factors will put a heavier burden on India. The solution to these issues will be crucial for continued economic development and the enhancement of living standards in the country.
World Bank's report on the economic challenges of India.
This is a commitment of the Reserve Bank of India, which decided to hold its policy rate earlier this month to manage inflation while Supporting Economic Growth. The central bank seeks to bring down inflation to its 4% medium-term target in a durable way.
Read about RBI's policy rate decision.
Conclusion
The overall outlook for the Indian economy remains positive despite a projected decline in Q1 GDP growth. With the strength of capital expenditure, rapid strides achieved in digitalization, and an external economic position that is much improved, prospects for long-term growth are excellent. Efforts will need to redouble in addressing structural challenges to employment and inclusive growth if economic progress is to be sustained and broad-based improvements in well-being are to be achieved for all citizens. Looking ahead under these levels of complexities, India's role in the world economy will change even more, influenced by domestic policy developments and by global events.
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