India’s Economic Growth (6.4% GDP, 2024-25)

India’s Economic Growth (6.4% GDP, 2024-25)

The Indian economy is projected to grow at 6.4% in FY 2024-25, as per the first advance estimates by the National Statistical Office (NSO). This reflects a deceleration from the 8.2% growth recorded in FY 2023-24, marking the lowest growth rate since the pandemic-induced contraction in FY 2020-21 (-5.8%).

This note provides a comprehensive analysis of India’s economic growth outlook for FY 2024-25, covering GDP trends, sector-wise growth, fiscal performance, inflation, trade, and key challenges.

GDP Growth Trends

• Real GDP (Constant Prices): Estimated to grow at 4% in FY 2024-25, compared to 8.2% in FY 2023-24.
• Nominal GDP (Current Prices): Expected to increase by 7%, reaching ₹324.11 lakh crore in FY 2024-25 from ₹295.36 lakh crore in FY 2023-24.
• Global Comparison: The projected 4% growth keeps India among the fastest-growing economies, compared to the IMF’s global GDP projection of 3.2%.
• Decadal Growth Trend: India’s average GDP growth rate over the last decade has been 6%, reinforcing long-term economic stability.

Key Factors Influencing GDP Growth:

1. Private consumption growth (7.3% in FY 2024-25, up from 4% in FY 2023-24).
2. Government spending rebound (Government Final Consumption Expenditure at 4.1%, from 2.5% in the previous year).
3. Slower industrial and services sector growth, impacting overall economic expansion.
4. Continued investment in infrastructure and digital transformation.

Sectoral Growth Analysis

1. Agriculture Sector
   • Projected Growth: 8% in FY 2024-25, up from 1.4% in FY 2023-24.
   • Key Growth Drivers:
     • Government support through MSP hikes, irrigation schemes, and agri-tech investments.
     • Improved monsoon expectations are contributing to higher crop yields.
     • Growth in livestock, fisheries, and allied sectors.
2. Industry & Manufacturing
   • Manufacturing GVA Growth: Expected to slow down to 5.3% in FY 2024-25, from 9% in FY 2023-24.
   • Construction Sector: Continues strong momentum at 9.9% in FY 2023-24, driven by infrastructure spending.
   • Industrial Share in GVA: 6% of total GVA in FY 2023-24, signaling moderate industrial expansion.
   • Challenges:
     • Weak global demand is affecting exports.
     • High input costs are impacting profit margins.
3. Services Sector
   • Projected Growth: 8% GVA growth in FY 2024-25, down from 6.4% in FY 2023-24.
   • High-Growth Segments:
     • The financial services & IT sector continues to perform well.
     • Trade, hotels, communication, and broadcasting are projected to slow down.
     • Public administration, defense, and other services expected to expand at 1% (up from 7.8%), driven by government spending.

Fiscal Performance & Investment Trends

1. Government Spending & Fiscal Position
   • Union Government Fiscal Deficit: Reduced to 6% of GDP in FY 2023-24, from 6.4% in FY 2022-23.
   • Capital Expenditure (CapEx): Increased 2% YoY to ₹9.5 lakh crore, focused on:
     • Infrastructure projects (road, rail, defense, telecom).
     • State-led capital formation for long-term economic growth.
   • State Fiscal Health: States’ gross fiscal deficit was 6% lower than projected, showing improved fiscal management.
2. Private Investment & Business Sentiment
   • Gross Fixed Capital Formation (GFCF): Increased by 8%, indicating strong private sector investment.
   • FDI & FPI Trends:
     • Net FPI inflows at $44.1 billion in FY 2023-24, reversing previous outflows.
     • FDI inflows are stable, with a focus on the manufacturing & technology sectors.

Inflation & Monetary Policy

1. Inflation Trends
   • Retail Inflation (CPI) declined to 4% in FY 2023-24, from 6.7% in FY 2022-23.
   • Core inflation remains stable at around 3%, ensuring price stability.
   • Factors Controlling Inflation:
     • Food price stabilization measures (buffer stock management, import policy adjustments).
     • Fuel price cuts & LPG subsidies.
     • RBI’s monetary tightening in previous years.
2. RBI’s Monetary Policy Stance
   • Interest rates remain steady, with no major policy rate cuts expected.
   • Focus on balancing growth with inflation control to maintain economic stability.

Trade & External Sector Performance

1. Export & Import Trends
   • Total exports (goods + services) reached a record $341.1 billion in FY 2023-24.
   • Merchandise trade weakened, while service exports remained strong.
   • Net Private Transfers (Remittances): Increased to $106.6 billion, helping to stabilize foreign exchange reserves.
2. Foreign Exchange Reserves & Rupee Stability
   • Forex Reserves: Sufficient to cover 11 months of projected imports.
   • Indian Rupee Stability: Among the least volatile emerging market currencies in 2024-25.

Employment & Social Development

1. Job Creation & Workforce Growth
   • India needs to generate 7.85 million jobs annually to absorb the growing workforce.
   • Female labor force participation rose to 37% (from 23.3% in 2017-18).
2. Social Welfare & Direct Benefit Transfers (DBT)
   • ₹36.9 lakh crore transferred via DBT since 2013, improving subsidy efficiency.
   • The government focuses on skill development & formal job creation to boost employment.

Challenges & Risks to GDP Growth

1. Global Economic Headwinds
   • Geopolitical conflicts may cause supply chain disruptions and inflation spikes.
   • US & EU monetary policies impacting global capital flows and FPI in India.
2. Domestic Challenges
   • The slowdown in manufacturing & industrial growth is affecting job creation.
   • Agriculture remains vulnerable to climate variability & water scarcity.
   • Need for structural reforms in ease of doing business and labor laws.
   • India’s GDP is projected to grow at 6.4% in FY 2024-25, ensuring steady economic expansion.
   • Strong domestic demand, infrastructure spending, and services growth will sustain economic momentum.
   • Policy focus on inflation control, fiscal discipline, and investment promotion will shape the economic trajectory.

Way Forward

1. Boosting industrial growth through policy incentives.
2. Enhancing ease of doing business to attract more investments.
3. Strengthening trade agreements to expand export markets.
4. Expanding social security programs to ensure inclusive growth.

GDP-Related Terms

Real GDP (Gross Domestic Product at Constant Prices)

• Definition: Real GDP measures the total value of goods and services produced in an economy in a given year, adjusted for inflation.
• Why It Matters: It reflects the actual economic growth by removing the effects of price changes.
• Example: If India’s real GDP grows by 4%, it means the economy produced 6.4% more goods and services in 2024-25 than in the previous year.

Nominal GDP (Gross Domestic Product at Current Prices)

• Definition: Nominal GDP is the total value of goods and services produced in an economy measured at current market prices.
• Why It Matters: It includes the impact of inflation, making it higher than real GDP.
• Example: If India's nominal GDP is ₹324.11 lakh crore in 2024-25, this includes both economic growth and inflation.

GDP Growth Rate

• Definition: The rate at which a country’s GDP increases or decreases compared to the previous year.
• Why It Matters: A high GDP growth rate means a strong economy, while a low or negative rate signals a slowdown or recession.
• Example: India’s GDP grew 2% in FY 2023-24 but slowed to 6.4% in FY 2024-25, indicating slower growth.

Sectoral Terms

Gross Value Added (GVA)

• Definition: GVA measures the total value of goods and services produced in an economy after deducting input costs (raw materials, energy, etc.).
• Formula: GVA=GDP+Subsidies−TaxesGVA = GDP + Subsidies - TaxesGVA=GDP+Subsidies−Taxes
• Why It Matters: GVA provides a sector-wise breakdown of the economy’s growth.

Manufacturing GVA

• Definition: The contribution of the manufacturing sector to the overall GVA.
• Example: If manufacturing GVA growth is 5.3% in 2024-25, it means manufacturing output increased by 5.3% compared to the previous year.

Services Sector GVA

• Definition: Measures the contribution of trade, hotels, financial services, IT, healthcare, and public administration to the economy.
• Why It Matters: Services form 7% of India’s economy, making it the largest sector.

Agriculture GVA

• Definition: The contribution of crop production, livestock, forestry, and fisheries to the economy.
• Why It Matters: Agriculture employs a large portion of the population, and its growth affects rural income and inflation.

Fiscal & Investment Terms

Fiscal Deficit

• Definition: The difference between the government’s total revenue and total expenditure.
• Formula: Fiscal Deficit = Total Expenditure−Total Revenue\text{Fiscal Deficit} = \text{Total Expenditure} - \text{Total Revenue}Fiscal Deficit=Total Expenditure−Total Revenue
• Why It Matters: A high fiscal deficit means the government is spending more than it earns, leading to higher borrowing.

Capital Expenditure (CapEx)

• Definition: Government spending on infrastructure projects like roads, railways, power, and defense that boost economic growth.
• Why It Matters: Higher CapEx leads to job creation and long-term economic benefits.

Gross Fixed Capital Formation (GFCF)

• Definition: The total investment in fixed assets (factories, machinery, buildings, etc.) by the government and private sector.
• Why It Matters: High GFCF signals strong business confidence and future growth.

Foreign Direct Investment (FDI)

• Definition: Investment by foreign companies or individuals in Indian businesses to gain ownership or control.
• Example: If Google invests in an Indian telecom company, it is FDI.

Foreign Portfolio Investment (FPI)

• Definition: Investment by foreign investors in Indian stocks, bonds, and mutual funds, without controlling ownership.
• Why It Matters: FPI flows affect stock market performance and exchange rates.

Inflation & Monetary Policy Terms

Retail Inflation (Consumer Price Index—CPI)

• Definition: The rate at which prices of consumer goods and services (food, housing, fuel, healthcare) increase over time.
• Why It Matters: High inflation reduces purchasing power, while low inflation supports economic stability.

Core Inflation

• Definition: Inflation excluding volatile food and fuel prices, giving a clearer picture of long-term price trends.
• Why It Matters: Helps policymakers decide interest rates.

Monetary Policy

• Definition: The RBI’s strategy is to control inflation, manage liquidity, and stabilize the economy through interest rates and money supply.

Interest Rate (Repo Rate)

• Definition: The rate at which RBI lends money to commercial banks.
• Why It Matters: Higher repo rates make loans costlier, reducing inflation, while lower rates boost borrowing and investment.

Trade & External Sector Terms

Merchandise Exports & Imports

• Definition: Exports refer to goods sold to foreign countries, while imports are goods bought from other countries.
• Why It Matters: A trade surplus (exports > imports) strengthens the economy, while a trade deficit weakens it.

Current Account Deficit (CAD)

• Definition: The difference between a country’s foreign currency earnings (exports, remittances, FDI) and spending (imports, FPI outflows, foreign debt payments).
• Why It Matters: A high CAD weakens the currency and increases reliance on foreign investment.

Foreign Exchange Reserves

• Definition: The RBI’s stock of foreign currencies, gold, and bonds, used to stabilize the rupee.
• Why It Matters: Higher reserves help India manage trade deficits and currency fluctuations.

Rupee Exchange Rate Stability

• Definition: How stable the Indian Rupee (INR) is compared to foreign currencies (USD, Euro).
• Why It Matters: A weak rupee increases import costs, while a stable rupee helps trade and investment.

Employment & Social Terms

Labor Force Participation Rate (LFPR)

• Definition: The percentage of the working-age population (15-64 years) that is actively working or seeking jobs.
• Why It Matters: A higher LFPR means more people are contributing to the economy.

Female Labor Force Participation

• Definition: The percentage of women engaged in the workforce.
• Why It Matters: Higher female participation boosts economic growth and gender equality.

Direct Benefit Transfer (DBT)

• Definition: Government subsidies and welfare payments sent directly to citizens’ bank accounts.
• Examples: LPG subsidy, MGNREGA wages, PM-Kisan payments.
• Why It Matters: Reduces corruption and ensures efficient welfare distribution.