‘In the light of a possible growth rate of 6.5%, the achievement of 6.4% in 2024-25 should not be considered disappointing’. Photo Credit: Getty Image/ISTOCKPhoto
The first advance estimate of national accounts for 2024–25 (FAE) reflects a real GDP growth of 6.4% and a nominal GDP growth of 9.7%. This number is reduced by 6.6% from the revised development estimate of the Reserve Bank of India for the actual GDP, as 10.5% in the statement of monetary policy in December 2024 and 10.5% for nominal GDP growth was presented in July 2024.
The annual growth of 6.4% can be seen as an increase of 6% in the first half and an increase of 6.7% in the second half. Thus, a clear improvement is expected on the Q2 increase of 5.4%. The 2024-25 annual GDP growth has been observed by a sharp decline of 8.2% from the previous year only in the case of GDP. Regarding the gross value enhanced (GVA), this difference is very low, between 7.2% and 6.4%. On the GVA side, it was a manufacturing sector which faced a sharp decline in regional growth from 9.9% in 2023-24, 5.3% in 2024–25.
Chance of increase for 2025-26
GDP at continuous prices is between 33.3% and 33.5% during the GDP at 2021-22 to 2024-25. Thus, it appears to be stable around 33.4%. This is expected to continue at this level in 2025-26. The average incremental capital production ratio (ICOR) has been more than 5 in recent years. Considering ICOR 5.1 in 2025-26, we can consider 6.5% real GDP development to be realistic.
The global economy may not change a lot, even if the perception of Donald Trump’s office may cause more uncertainty. India will have to depend on domestic demand to a large extent.
In particular, the Government of India must ensure that there is no discount in its investment expenditure. In fact, a slightly less increase in 2024–25 is largely linked to the recession in India’s investment growth, which remains negative at 12.3% even after eight months in the financial year.
With a low nominal GDP increase in 2024-25 of 9.7% compared to a budgetary nominal GDP growth of 10.5%, to maintain a budgetary boom of 1.03, a budgetary revenue (GTR) of 38.4 lakh crores cannot be realized. According to the controller of accounts (CGA) data, the GTR growth for the first eight months was 10.7%. If this growth is maintained even for the remaining months, it was realized that the boom would be about 1.1, which is more than the budgetary bounce. In such a case, the lack of tax revenue will be minimal. In other words, any revenue barrier or potential pressure on the fiscal deficit will not obstruct the government’s ability to achieve its capital expenditure target of ₹ 11.1 lakh crore.
Dip cause
However, after the first eight months, the level of capital expenditure of the Government of India has been limited to 5.14 lakh crores, which is 46.2% of the budget target. In the remaining four months, the capital expenditure of the Government of India may accelerate. It can still fall well with the target. This has been the main cause of dip in overall actual GDP growth in 2024–25.
Giving ahead in 2025-26, the Government of India will have to continue relying on a quick capital expenditure growth that can be placed at least 20% on revised estimates for 2024-25. Continuous government capital expenditure can have a favorable impact on private investment. The government’s investment expenditure size and pattern should also be designed to accelerate private investment.
For the possibilities of medium- long-term development
Over a period of the next five years, the best expectation of India can have a stable real GDP growth of 6.5%. It corresponds to the actual GDP development launch of the International Monetary Fund for the Indian economy, as in October 2024, which is 6.5% in the period from 2025–26 to 2029–30. This actual GDP growth can be about 4%with an underlying value deflator (IPD)-in-the-based inflation that can give nominal GDP increase in the range of 10.5%-11%. In the years in which global conditions improve and the contribution of net exports to GDP growth becomes important, the actual GDP growth can also touch 7%. If the actual growth of about 6.5% and the nominal increase in the range of 10.5% -11% is maintained for a long time with a average exchange rate of 2.5% per year, then India must be able to reach per capita GDP level per capita GDP level in the next two decades. But the work is not going to be easy. The base will be difficult to grow at 6.5% as the base increases. In fact, in earlier years, the growth rate will be higher. However, currently, the potential rate of development seems to be 6.5%. However, it can change.
In light of a possible growth rate of 6.5%, the achievement of 6.4% in 2024–25 should not be considered disappointing. In fact, the achievement of 8.2% in 2023–24 should be considered a flash in PAN. The growth rate of the current year should be seen in the first advance estimates as India’s possible growth rate.
C. Rangarajan is the former president, the Prime Minister’s Economic Advisory Council and the former Governor, Reserve Bank of India. DK Srivastava is the Honorary Professor, Madras School of Economics and Member, Advisory Council of the sixteenth Finance Commission. Expressed views are personal
Published – January 18, 2025 12:16 AM IST