India's GDP Growth Pegged At 6.4% for FY25, Slowest Since Pandemic; What Does It Mean?

GDP Growth 2025: The National Statistics Office (NSO) and Ministry of Statistics and Programme Implementation (MoSPI) has announced the first advance estimates of annual GDP growth rate to 6.4% for FY25. This will be the slowest growth since the pandemic, and below many economists' estimates. Also, the first advance estimate is lower than RBI's prediction of 6.6% GDP growth in FY25. So what does the first advanced estimate of GDP mean for the Indian economy and citizens?

Here are the estimates by NSO for GDP FY25:

- Real GDP has been estimated to grow by 6.4% in FY 2024-25 as compared to the growth rate of 8.2% in the Provisional Estimate (PE) of GDP for FY 2023-24. Nominal GDP has witnessed a growth rate of 9.7% in FY 2024-25 over the growth rate of 9.6% in FY 2023-24.

Real GVA grew by 6.4% in FY 2024-25, up from 7.2% in FY 2023-24. Nominal GVA grew by 9.3% in FY 2024-25, up from 8.5% in FY 2023-24.

The real GVA of the Agriculture and allied sector has been estimated to grow by 3.8% during 2024-25, compared to the growth of 1.4% witnessed during the previous year, 2023-24.

- Private Final Consumption Expenditure (PFCE) at Constant Prices, has witnessed a growth rate of 7.3% during FY 2024-25 over the growth rate of 4.0% in the previous Financial Year.

- Government Final Consumption Expenditure (GFCE) at Constant Prices, has rebounded to a growth rate of 4.1% as compared to the growth rate of 2.5% in the previous Financial Year.

What do economists say?

As per BofA Global Research report, while the market remains relentlessly focused on real GDP growth and inflation, an often-overlooked part of the slowdown story in India is nominal GDP growth, which hit a 15-quarter low of 8.0% yoy in Q3 2024. This is the slowest pace since the pandemic and is now reversing the gains made in recovering lost output. This will have many ramifications for consumer and business confidence, wage growth, corporate revenues, consumption, investment, credit demand and, most importantly, the fiscal arithmetic.

BofA's note added, "The causes of the slowdown in nominal GDP growth have changed from inflation to growth in the past two years, but sector-wise it remains widespread. In 2023, the bulk of the downward shift was driven by falling WPI inflation, which reflected lower input costs. However, as the rate of inflation has normalized, nominal GDP growth is now slowing because of slower activity levels. We note that all key sectors are settling at lower levels of nominal GDP growth than they were pre-pandemic, with the first advanced estimate showing nominal GDP growth from the previous fiscal year."

Meanwhile, Madhavi Arora, Lead Economist, Emkay Global Financial Services said, "The NSO has pegged the first estimate of FY25 GDP growth at 6.4% (RBI: 6.6%), implying that 2HFY24 will see steady growth at ~6.8% after the tepid print of 6% in 1H. However, we think 2HFY25 may face downward pressure, implying a downside risk to FY25AE of 6.4%, amid weaker participation of private economic agents."

However, Arora also believes that first advance estimates for GDP are prone to revision too. She said, "However, advance estimates have a short shelf life and are prone to revisions. The advance estimates are mainly done to help the government gauge the growth outlook and tax buoyancy ahead of the budget. They are largely an extrapolation of indicators available until November and are, thus, susceptible to significant revisions. The first advance estimate also has a short shelf life, as the second advance estimate will be released at the end of February, along with 3QFY25 data, while the NSO will also publish its revised estimates of national accounts for the last three years by Jan-end, which will change the base year data as well."

In the opinion of Jahnavi Prabhakar Economist at Bank of Baroda, a range of economic and strategic risks prevails after the imposition of the tariff polices by the incoming US President Mr Trump. This could be the far-reaching impact on global trade, with any retaliatory measures pushing towards the possibility of a tariff war. This remains a global risk and will adversely impact the global economies.

Bank of Baroda's economist added, "Indian economy remains resilient on the back of the strong festive demand and steady improvement in economic activity. The same has already been reflected by some of the high-frequency indicators witnessing an uptick in Q3, these include air passenger traffic, services PMI and a jump in GST collections. Additionally, higher rabi sowing bodes well for agriculture growth."

Notably, Prabhakar also sees some downside risk to these estimations emerge due to global headwinds, especially the threat of tariff war. Investment and Consumption continues to remain critical factors supporting the growth in the coming months. Focus would also move towards the Union Budget, corporate performance in Q3 and Q4 and RBI's rate decision, we expect the rate cut action in the next meeting scheduled in Feb'25. For FY26, we expect the nominal GDP at 10.5% and real GDP at 6.8%.

Despite the latest short term volatility in the GDP growth, one economist believes India's economy appears to be robust still.

Vikas Gupta, smallcase Manager and CEO at Omniscience Capital said, Despite short-term market fluctuations, the Indian economy appears robust, with real GDP expected to close FY2025 at 6.4% and nominal GDP at 9.7%. Inflation is well within the Reserve Bank of India's (RBI) upper band of 6%. Listed companies are expected to outpace nominal GDP growth, given the underrepresentation of the slower-growing agriculture sector in listed markets. Strong indicators, such as Purchasing Manager's Indexes above 50 and a 9.1% year-on-year increase in GST collections from April to December 2024, reinforce this positive outlook. Additionally, advance tax collections for the same period show a 21% growth, with corporate advance taxes up by 17% and non-corporate taxes soaring by 35%."

Further, Gupta predicts government spending is anticipated to rise significantly in the last quarter, further boosting growth for FY 2024-25. The upcoming Union Budget for FY 2025-26 is expected to focus on strong capital expenditure, potentially increasing allocations by 12% or more compared to the previous year.

But Gupta also shed light on the rate cut trajectory in India. He said, despite multiple rate cuts by the US Fed, the RBI has yet to follow suit but is expected to start reducing rates in its next meeting in February. The favorable PMI, GST, and tax data suggest a strong finish for FY2025, with the subsequent budget likely to be growth-oriented.

Adding Gupta said, "We anticipate revenue and earnings growth in the range of 15%-16% for Calendar 2025 and FY26, with markets potentially re-rating to a PE multiple of 25 or higher, driven by RBI rate cuts and renewed FII inflows."

On the market, Gupta said, in terms of valuations, large caps appear undervalued (PE=22) relative to midcaps (PE=43) and small caps (PE=34), which seem overvalued. Within the Nifty indices, sectors such as Banks & Financial Services, Auto, Metals, and Oil & Gas trade below the Nifty 50 average PE. However, given their cyclical nature and slower growth, Metals and Oil & Gas might be fairly or overvalued even at these lower PEs, positioning Banks as the most undervalued large sector currently."