India’s Economic Growth Rebounds in Late 2024
In the October-December quarter of 2024, India’s Gross Domestic Product (GDP) growth rebounded to an estimated 6.3%, primarily driven by increased government spending. This resurgence follows a slowdown to 5.4% in the previous quarter, attributed to reduced infrastructure investments during the national elections. Economists highlight that while public expenditure saw double-digit growth, household consumption remained subdued, even during the festive season. The Gross Value Added (GVA) for this period is projected to have expanded by 6.2%. Concerns have been raised about the economy’s reliance on government intervention, especially given the sluggishness in private consumption. Rising inequality is noted as a contributing factor, with wealth concentration at its highest in six decades. Despite efforts to stimulate private investment through corporate tax cuts and infrastructure spending, there has been limited impact on investment, employment, or household income. Projections indicate that the economy may grow between 6.3% and 6.7% through mid-2026, which falls short of the 8% growth rate deemed necessary for broader economic benefits and job creation.
Policy Measures and Economic Forecasts
In response to a significant slowdown in the manufacturing sector—a critical area for employment—the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) implemented a 25 basis point cut to the key repo rate in February 2025. This decision was influenced by subdued urban consumption and sluggish private investments. The manufacturing sector experienced a sharp decline, growing only 2.2% in the September quarter compared to 7% in the June quarter. The moderation in domestic inflation provided the MPC with an opportunity to support economic growth through this rate reduction, marking the first such cut in nearly five years. Looking ahead, the economy is expected to grow at 6.4% for the fiscal year ending in March, the slowest pace in four years, primarily due to weaknesses in manufacturing and sluggish corporate investments.
In its annual budget, the Indian government introduced significant tax cuts for the salaried middle class to stimulate economic growth, address unemployment, and boost private investment. Finance Minister Nirmala Sitharaman outlined measures such as increasing the income tax threshold and implementing reforms across various sectors, including finance and urban development. Initiatives also encompass enhanced funding for agriculture, welfare programs for gig economy workers, and promotion of startups through new funds. A notable push towards clean energy includes the Nuclear Energy Mission, aiming for 100 GW by 2047. The budget targets a fiscal deficit of 4.4% for 2025-26, addressing challenges like sluggish manufacturing and rising inflation.
Diverse Economic Projections
Various financial institutions have provided differing forecasts for India’s economic growth. The International Monetary Fund (IMF) projects a GDP growth rate of 7% for the fiscal year 2024-25 and 6.5% for 2025-26, attributing the deceleration to the fading of pent-up demand post-pandemic.
Conversely, Morgan Stanley has raised its GDP growth forecast for 2024-25 to 6.8%, citing continued traction in industrial and capital expenditure activities. The firm anticipates that both public and private capital expenditures will sustain this growth momentum.
On the other hand, Goldman Sachs predicts a deceleration to 6.3% in 2025, influenced by ongoing fiscal consolidation and slower credit growth. Despite this, the firm maintains a positive long-term outlook for India’s structural growth, driven by favorable demographics and stable governance.
Global Comparisons and Future Outlook
Comparatively, India’s economic trajectory appears more robust than some other major economies. The United Nations forecasts that India will be the fastest-growing major economy globally, with a GDP growth of 6.6% in 2025, outpacing China’s projected 4.8% growth. This positions India favorably in the global economic landscape, especially as it continues to attract investments and expand its manufacturing capabilities.
In summary, while India’s economy shows signs of resilience with a rebound in GDP growth, challenges persist, particularly in private consumption and manufacturing. Policy interventions, such as tax reforms and infrastructure investments, aim to address these issues. However, achieving sustained and inclusive growth will require a balanced approach, fostering both public and private sector participation to navigate the complex economic landscape.
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