GDP Growth Slows Down in FY 2024-25

Source: The Hindu (GDP slows down)

Context:

The National Statistics Office (NSO) released its first advance estimates of GDP for FY 2024-25, projecting a growth rate of 6.4%, the slowest in four years. This projection is critical for policymakers, particularly as the Union Budget for 2025-26 is being prepared.

UPSC Relevance:

Prelims:

  • Important Terms:
    • Gross Domestic Product (GDP)
    • Gross Value Added (GVA)
    • Gross Fixed Capital Formation (GFCF)
  • Sectoral Trends: Agriculture, Manufacturing, Public Administration.

Mains (GS Paper III):

  1. Economic Development:
    • Challenges in maintaining high GDP growth.
    • Role of government expenditure and fiscal policies.
  2. Issues with Private Investment:
    • Reasons for sluggish investment despite favourable conditions.
  3. Policy Implications:
    • Need for targeted fiscal stimulus to revive growth engines.
gdp growth

Key Highlights of NSO’s GDP Projections:

GDP and GVA Growth:

  1. Real GDP Growth:
    • Estimated at 6.4% in 2024-25, down from 8.2% in 2023-24.
    • Economy rebounded in the second half of the fiscal year with an estimated growth of 6.8% after clocking 6% in the first half.
  2. Gross Value Added (GVA):
    • Projected to grow at 6.4%, compared to 7.2% in 2023-24.
    • Sectoral Growth:
      • Agriculture: Growth expected at 3.8% (up from 1.4% last year).
      • Public Administration, Defence & Other Services: Projected at 9.1% (from 7.8% last year).
      • Manufacturing: Slows to 5.3%, a significant drop from 9.9% in 2023-24.
      • Mining and Quarrying: Growth at 2.9%, down from 7.1%.

Concerns Over Investment Growth:

  • Gross Fixed Capital Formation (GFCF):
    • Indicator of fresh investments, projected to grow at just 6.4%, compared to 9% in 2023-24.
    • Decline attributed to reduced government capital expenditure and sluggish private sector investment, despite favorable conditions.
  • Construction Sector:
    • Growth pegged at 8.6%, lower than 9.9% last year.

Expenditure-Side Analysis:

  1. Private Final Consumption Expenditure (PFCE):
    • Expected to rise 7.3%, indicating improved household spending compared to 4% last year.
  2. Government Final Consumption Expenditure (GFCE):
    • Projected to grow 4.1%, up from 2.5% in 2023-24.

Economic Implications of GDP slow down for Budget 2025-26:

  • Key Challenge: Restoring GDP growth to 7%-plus levels achieved in preceding years.
  • Impact of Monetary Policies:
    • The RBI’s interest rate hikes and tighter lending norms have contributed to the slowdown.
    • Lower fiscal stimulus has also played a role in tempering growth.

Expert Opinions:

  • Dharmakirti Joshi (Crisil Chief Economist):
    • Slower growth in 2024-25 attributed to high interest rates, reduced government spending, and sluggish private investment.
    • A sharper focus on boosting private investments is critical.
  • Madhavi Arora (Emkay Global Financial Services):
    • The advance estimates are based on limited data available till November and are prone to revisions.
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