1st Advance Estimate GDP Growth At 6.4% — Lowest In 4 Years

The estimates are on the back of the 5.4 per cent growth rate registered in the second quarter of 2024-25, over the growth rate of 8.1 per cent in the corresponding period of 2023-24.

Lower fiscal stimulus amid the general elections, high interest rates and stringent lending norms are among the reasons that might have impacted growth.

The country’s gross value added (GVA), which does not take into account the indirect taxes and subsidies, is also projected to grow at 6.4 per cent.

"Real GDP has been estimated to grow by 6.4 per cent in FY 2024-25 as compared to the growth rate of 8.2 per cent in Provisional Estimate (PE) of GDP for FY 2023-24", the official statement read.

Nominal GDP — the total value of all goods and services measured in current prices without adjusting for inflation during a specified period —  however is estimated to have grown at 9.7 per cent in 2024-25 over the growth rate of 9.6 per cent in 2023-24. This signifies the presence of inflationary pressure in the economy.

The 6.4 per cent growth rate is lower than the 6.6 per cent projected by the Reserve Bank of India (RBI) last month.

“Though the GDP growth rate is being widely described as a shocker, it was coming and is fairly representative of the state of the economy. But now it will be more interesting to see how things pan out from here. I will not be surprised if the growth rate for the full fiscal year falls below the 6 per cent mark,” Former Finance Secretary Subhash Garg told The Secretariat earlier.

Consumption Experiences A Revival

The good news is that private final consumption expenditure (PFCE) — the total amount of money spent by households and non-profit institutions on goods and services at constant prices — showed signs of revival. It is projected to grow at 7.3 per cent in 2024-25, compared to 4.0 per cent in the previous financial year.

However, the growth is also underlined by a rebound in government final consumption expenditure (GFCE) — the total amount of money the government spends on goods and services for people's benefit.  The growth rate in GFCE is 4.1 per cent in 2024-25 – up from 2.5 per cent in 2023-24.

This implies that government spending is going up again after last year’s election, and it has helped in a moderate revival of the consumption demand.

As GFCE growth goes up, the natural fallout is an increase in the growth rate of public administration, defence and other services – from 7.8 per cent in 2023-24 provisional estimates to 9.1 per cent in 2024-25 first advance estimates.

Agriculture, livestock, forestry and fishing have somewhat revived with a growth rate of 3.8 per cent in 2024-25 from 1.4 per cent in the previous financial year.

Apart from these two broad sectors, all others experienced a slowdown commensurate with the overall deceleration, as can be seen in these first advance estimates.

The most prominent among these comprises the mining and quarrying sector, where the growth rate decelerated to 2.9 per cent in 2024-25 from 7.1 per cent in 2023-24. Similarly, construction sector growth slightly slowed down to 8.6 per cent in 2024-25 from 9.9 per cent in the previous year.

However, the main pain point for policymakers will be the slowdown in the manufacturing sector. Growth in the manufacturing sector slowed substantially to 5.3 per cent in 2024-25 from 9.9 per cent in 2023-24.

All Eyes On The Union Budget

With the growth rate slowing, Finance Minister Nirmala Sitharaman in the forthcoming Union Budget, will have to focus on boosting manufacturing and infrastructure with an eye on employment generation. She will also have to carve out ways to boost consumption.

“The urban economy is grappling with the dual challenge of high inflation and slowing credit growth,” DK Joshi, Chief Economist, Crisil, said in a statement. “The recent data indicates consumer confidence has moderated in urban areas, and growth in retail credit, which has a larger footprint in the urban economy, has slowed,” he added.

RBI’s Policy Rate

That apart, the RBI in its February monetary policy committee (MPC) meeting under the aegis of Sanjay Malhotra, who took over as Governor last month, may finally reduce key policy rates. Former RBI Governor Shaktikanta Das refused to reduce interest rates this year while focusing solely on inflationary trends.