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India's GDP growth rate forecast for FY25 has recently been revised downwards by several institutions, reflecting a broader economic slowdown. Various challenges, both domestic and global, have contributed to this downshift, including reduced corporate profitability, public capital expenditure constraints, a slowdown in manufacturing, and weaker urban consumption. Notably, Moody’ s has cut its projection to 7% from 8.2%, while Care Ratings revised its forecast down to 6.5% from 6.8%. Nomura also reduced its estimate to 6.1% from 6.4%, and the State Bank of India (SBI) lowered its estimate to 6.3% from the National Statistical Office's (NSO) initial projection of 6.4%. Additionally, the Reserve Bank of India (RBI) revised its growth estimate to 6.6% from 7.2%, and the NSO’s First Advance Estimates (FAE) projected a GDP growth rate of 6.4% for FY25, a significant decline from the 8.2% growth seen in FY24. To better understand the causes and potential effects of this downward revision, a detailed analysis of the First Advance Estimates (FAE) from the Ministry of Statistics and Programme Implementation is presented below.

Table 1 outlines the nominal and real GDP growth in India over the past decade. It is important to note that India’s real GDP growth has been declining consistently over the past four years, from 9.7% in 2021-22 to a projected 6.4% in FY25.

For FY25, the FAE estimates a nominal GDP growth of 9.7%, with real GDP growth projected at 6.4%. This is in contrast to the finance minister’s interim budget estimate in February 2024, which pegged the GDP at Rs. 328 lakh crore, later revised down to Rs.324 lakh crore in July 2024. Experts argue that achieving the desired long-term economic goals will be challenging with this relatively low growth rate of 6.4%, as it falls short of the necessary pace to achieve a per capita Gross National Income of $14,000 by 2047.

Growth Trends in Economic Sectors

The primary sector (comprising agriculture, livestock, forestry, and fishing) is projected to grow at 3.6% in FY25, an increase from 2.1% in FY24. This growth is largely driven by favorable factors such as a good monsoon season, strong kharif crop performance, better rabi sowing, and improved water levels in reservoirs. The mining and quarrying sub-sector, however, is expected to experience a slower growth rate of 2.9% in FY25, compared to 7.1% in FY24, due to the high growth base effect from FY23.

Challenges in the Secondary Sector

The secondary sector, including manufacturing, cons-truction, and utility services, is expected to see a significant slowdown, with growth dropping from 9.7% in FY24 to 6.5% in FY25. Manufacturing, a key contributor to this sector, is projected to grow by just 5.3% in FY25, down from 9.9% in FY24. This decline is primarily driven by global economic uncertainties, volatile raw material prices, and weak demand. The construction sector also faces challenges from delayed projects, liquidity issues, and rising input costs. Furthermore, the sector is highly vulnerable to global trends, and the ongoing uncertainty in international markets may affect exports and, in turn, the sector’s growth.

Outlook for the Services Sector

The services sector is expected to grow by 7.2% in FY25, slightly down from 7.6% in FY24. Growth drivers include finance, insurance, real estate, and professional services. However, this sector faces headwinds, such as rising interest rates, increased competition, and regulatory pressures in the finance and insurance sub-sectors, along with a slowdown in real estate activity due to high inventory and declining demand.

Second Half Optimism

A positive aspect is the expected pick-up in growth in the second half of FY25. GDP growth in H2 is estimated to rise to 6.7%, compared to 6% in H1. This improvement is expected to be driven by rural demand, fueled by a healthy agricultural performance and a potential reduction in food inflation, which should stimulate consumption. Private consumption is expected to grow robustly by 7.3% in FY25, a significant improvement over the 4% growth in FY24, with growth accelerating to 7.8% in H2.

In conclusion, while India faces considerable headwinds in terms of slower growth projections, parti-cularly in the manufacturing and construction sectors, there are also signs of resilience, particularly in rural demand and consumption. With an anticipated improvement in the second half of FY25, the Indian economy may stabilize and even experience a recovery, although achieving its long-term goals will require addressing the structural challenges it faces.