As 2024 unfolded, it reflected the complexities of our times. Unprecedented political engagement marked the year, with over half of the world’s population participating in major elections. However, these political outcomes have coincided with adverse geopolitical developments that have heightened instability. These events have disrupted trade routes and energy markets and contributed to rising volatility in global financial markets.
Amidst these challenges, India has charted a steady course of growth. The National Statistical Office estimates India’s GDP growth for FY25 at 6.4 per cent, driven by domestic demand and steady performance across sectors. The share of private consumption in nominal GDP is also estimated to be 61.8 per cent — the highest over two decades. A key driver of private consumption growth has been the recovery in rural demand. Indicators such as increased sales of two-wheelers, three-wheelers, and tractors underscore this trend. This is also reflected in the January 2025 round of Nabard’s Rural Economic Conditions and Sentiments Survey, where most respondents reported an increase in their consumption expenditure over the past year. The agriculture sector is expected to rebound in FY25, supported by record kharif production and bright prospects for the upcoming rabi crop. Manufacturing growth is expected to moderate in FY25, primarily owing to weaker external demand and festive timing variations in Q2 FY25.
Services drive growth
Consumer-focused sectors like automobiles, electronics, and pharmaceuticals have emerged as growth drivers within the industrial sector. With the conclusion of the monsoon season and the expected pick-up in public capex, sectors such as cement, iron and steel are expected to gain strength. Meanwhile, the services sector continues to drive growth, also evidenced by high-frequency indicators and first advance estimates.
A trend analysis presented in Chapter 1 of the Economic Survey 2024-25 also reveals that India has averted any permanent output losses due to the pandemic across sectors.
India’s resilience in recent years has been marked by fiscal discipline, stable inflation, external sector balance, and a healthy financial system. The quality of the expenditure by the Central government has been continuously improving since FY21, as evidenced by the rising ratio of capex to total expenditure. Inflation has moderated from 5.4 per cent in FY24 to 4.9 per cent in April-December 2024. Despite volatility in prices of certain food items, a reduction in core inflation has contributed to price stability.
A strong services trade surplus and record remittances have supported India’s external sector stability. India’s performance in service exports has propelled the country to secure the seventh-largest share in global services exports. India’s banking system is characterised by robust capital buffers and improving asset quality, supporting the economy in an increasingly uncertain global environment. Gross NPAs have declined to a 12-year low.
A blend of optimism and caution marks India’s growth prospects for the near future. On the upside, domestic investment activity is expected to increase, supported by public capex and improving business expectations. Capacity utilisation in manufacturing remains above the long-term average. Order books of private capital goods companies have shown steady growth, alongside increased investment intentions. Food inflation is expected to ease, supported by favourable agricultural output. However, this outlook is beset with several challenges. Global risks such as geopolitical tensions and economic disruptions may weigh on trade and overall price stability. There are also concerns about global commodity and energy price fluctuations and the potential impact of adverse weather events on food inflation. Considering the challenges and opportunities, the Economic Survey has projected the real growth rate in FY26 to be between 6.3 and 6.8 per cent.
To secure India’s medium-term growth potential, it is essential to enhance its global competitiveness. This requires grassroots-level structural reforms and deregulation to unleash the full economic potential.
Swaroop is Assistant Director, Adiraju and Chowdhry are Consultants, and Cyriac is Economic Adviser, with the Economic division, Department of Economic Affairs, Ministry of Finance