Estimated growth for the fiscal has come in at 6.4%, less than RBI’s projection of 6.6%. Agriculture sector & consumption are expected to grow, but manufacturing & investment may struggle.
The first advance estimates peg India’s GDP (Gross Domestic Product) growth at 6.4 percent in FY 2024-25, compared to 8.2 percent growth recorded in FY 2023-24. The Gross Value Added is also estimated to grow at 6.4 percent, while nominal GDP growth is estimated at 9.7 percent.
These estimates are crucial as they form the basis for budget calculations, including the projections for the nominal GDP growth for the next financial year.
With growth coming in at less than the RBI’s projection of 6.6 percent, the trade-off between growth and inflation will intensify, complicating the conduct of monetary policy in the coming months.
Supply side: Strong growth in agriculture, sharp slide in manufacturing
Agricultural growth is projected to rebound to 3.8 percent in the current year from 1.4 percent in the previous year. With rainfall at 8 percent above the long period average, and healthy reservoir levels leading to record Kharif output and strong Rabi sowing, agriculture was expected to perform better.
However, the manufacturing sector is estimated to slow down sharply from 9.9 percent in the previous year to 5.3 percent in the current year. Subdued exports, uneven consumer demand and dumping of cheap imports from China adversely impacted the sales and profitability of the manufacturing sector. A case in point is the sharp surge in imports of steel, which are causing serious damage to India’s steel industry.
The slump in China’s manufacturing sector could worsen with the recent uptick in HMPV cases. This could impact India’s manufacturing by reducing demand for its exports. Particularly, the exports of raw materials, like iron ore, could suffer with a prolonged slowdown in China.
Manufacturing growth slowed down to 4.5 percent in the first half of the current fiscal year. The full year estimates suggest that the sector is expected to grow by 6.1 percent in the second half. While a modest recovery in demand in the second half could help, the China factor would be crucial in shaping the trajectory of the manufacturing sector over the next few quarters.
Growth in the construction sector is also expected to moderate from 9.9 percent to 8.6 percent in the current year. The slowdown in government capex, particularly in roads, could have impacted the performance of the sector.
Mining, and electricity and utility services, are also expected to register a weaker growth this year, primarily due to the weather shocks and subdued mining. Monthly indicators for the mining sector, viz. IIP Mining, production of crude oil and natural gas, have reported tepid growth in the first seven-eight months of the current year.
Overall, services sector growth is expected at 7.2 percent, slightly lower than last year’s 7.6 percent. The growth in services is led by public administration, defence and other services, while trade, hotels, transport, communication and broadcasting, and financial, real estate and professional services, are seen growing at a slower pace than last year.
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