India’s Economy Is Likely to Grow by 6.5 per Cent in the Current and the Next Financial Year

 New Delhi: India's economy is likely to grow by 6.5 per cent in the current and the next financial year, attributing lower than anticipated expansion in the September quarter to fall in private consumption expenditure and gross fixed capital formation. This was primarily because two domestic demand components -- private final consumption expenditure and gross fixed capital formation -- together accounted for a fall of 1.5 percentage points according to a EY report.

Real GDP growth eased to a seven-quarter low of 5.4 per cent in July-September -- the second quarter of the current 2024-25 fiscal year. This was compared to 6.7 per cent in the preceding quarter. “One outstanding feature of demand is the slowdown in investment, as reflected in the growth of gross fixed capital formation. This growth is estimated at 5.4 per cent in 2QFY25, which is a six-quarter low. Apart from the fact that private investment demand has not picked up, there was a contraction in government of India's investment expenditure growth, which has remained negative at (-)15.4 per cent in first half of FY25,” the report said.

The economy continued to be negative even in October 2024 at (-)8.4 per cent, implying that in the first seven months government's investment expenditure growth has remained negative at (-)14.7 per cent. “In fact, to meet the budgeted target of government's capital expenditure growth of 17.1 per cent over CGA actuals for FY24, we now require a growth of 60.5 per cent in the remaining five months of the fiscal year FY25,” the report said.

The EY Economy Watch December 2024 forecasts India's real GDP growth at 6.5 per cent for FY25 (April 2024 to March 2024 fiscal year) and FY26. It also highlights the importance of reforming India's fiscal responsibility framework to achieve the Viksit Bharat vision by 2047-48. “A recalibrated approach is vital for sustainable debt management, eliminating government dissavings, and driving investment-led growth, paving the way for India's transformation into a developed economy,” it said.

“With global conditions remaining uncertain and global trade likely to be fragmented, India may have to continue to rely largely on domestic demand and services exports. In the medium-term, India's real GDP growth prospects can be kept at 6.5 per cent per year provided the Government of India (GoI) accelerates its capital expenditure growth in the remaining part of the current fiscal year and comes up with a medium-term investment pipeline with participation from the GoI and state governments and both their respective public sector entities, and the private corporate sector,” it added.

It would be appropriate to recast the earlier 2019 National Infrastructure Pipeline (NIP) for a period extending up to 2030 with revised targets for the priority sectors including roads, smart cities, railways, power, and renewable energy. “Investment targets for all the three major investors namely GoI and state governments and their respective public sector undertakings, and private corporate sector should be recast after evaluating their performance in financing the earlier NIP,” the report said.