FY 2025 Expectations: India's GDP To Grow At... - EY Projection

The EY Economy Watch December 2024 report projects India's real GDP growth at 6.5 per cent  for both FY25 and FY26, underlining the importance of sustained reforms to maintain this growth trajectory.

“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 Q2FY25, marking a six-quarter low. Private investment demand remains subdued, while government investment expenditure has contracted sharply, recording negative growth of (-)15.4 per cent in the first half of FY25,” the report stated.

Need for Fiscal Responsibility Reforms

To achieve the vision of Viksit Bharat by 2047, EY emphasizes the need to reform India's fiscal responsibility framework. Key focus areas include:

• Sustainable Debt Management: Containing government borrowing and debt levels.
• Eliminating Government Dissavings: Reducing fiscal deficits.
• Investment-Led Growth: Enhancing public and private investments to drive economic transformation.

Domestic Demand and Medium-Term Growth

Given global uncertainties and fragmented trade, India must rely on domestic demand and services exports to sustain growth. EY suggests maintaining a 6.5 per cent  GDP growth rate in the medium term by:
 

• Accelerating government capital expenditure in FY25.
• Introducing a medium-term investment pipeline involving participation from the central and state governments, public sector entities, and private corporations.

Revised National Infrastructure Pipeline (NIP)

EY proposes revising the 2019 National Infrastructure Pipeline (NIP) with updated targets extending to 2030. Focus sectors include:
 

• Roads
• Smart cities
• Railways
• Power
• Renewable energy

Investment targets for central and state governments, public sector entities, and the private sector should be recalibrated based on past performance.

Infrastructure Investment Goals

EY recommends allocating a minimum of 6 per cent  of GDP annually towards infrastructure development for the next five years. To achieve this, both the central and state governments must:

• Minimize revenue deficits.
• Prioritize long-term infrastructure growth to strengthen economic resilience and foster sustainable development.

Key Highlights for December 2024

In December 2024, India’s economic growth slowed, with GDP at 5.4 per cent  and GVA at 5.6 per cent  in Q2 FY25, marking a seven-quarter low. CPI inflation eased to 5.5 per cent , and WPI inflation dropped to 1.9 per cent , aided by declining vegetable prices. 

The RBI retained the repo rate at 6.5 per cent  but reduced the CRR by 50 bps to inject INR 1.16 lakh crore into the banking system. Government revenue grew by 10.8 per cent  (April-October FY25), while capital expenditure contracted by (-)14.7 per cent , and fiscal deficits remained controlled. 

Trade faced challenges with exports declining (-4.8 per cent ) and the trade deficit reaching a record US$37.8 billion. Bank credit growth slowed to 12.8 per cent , and global crude prices fell to US$72.3/bbl. The OECD projected India’s FY25 growth at 6.8 per cent , supported by domestic demand and investments.