India’s growth rate for fiscal year 2024-25 slowed to just 6.5%. This is the lowest pace seen in over four years. Weak private investments and global uncertainties weighed down on the overall momentum.
The Ministry of Statistics released data on Friday that showed the economy grew faster than expected in the fourth quarter. This was in contrast to the median 6.7% forecast by economists in a Reuters survey.
In the March quarter, the performance was the highest of all three months in 2012. It increased from 6.2% the previous quarter.
The annual numbers showed that the economy was not able to escape the wider slowdown which has developed since the recovery from pandemic era. They also represent a deceleration of 8%, compared with the average in the last few years.
After the release of the GDP figures, the yield on the bond for 10 years rose by 2 basis points.
Source: Bloomberg
The growth is in line with projections, but there are still risks
The growth of 6.5% for the full year was consistent with government forecasts, reflecting domestic consumption, services and private investment, even though they remained modest.
The subdued appetite for investment was attributed by economists to the geopolitical tensions and Trump’s trade policy changes, as well as a weak security climate in South Asia.
Senior Indian officials still maintain that India remains the fastest growing major economy in world ahead of China, and other large counterparts.
India’s low dependence on exports also boosted growth, shielding it from the brunt of the erratic trade dynamics in the world, especially from the US.
Trump’s tariffs and rates cuts threaten to disrupt the outlook
In recent weeks, President Donald Trump’s reciprocal 26% tariffs against Indian products put pressure on India’s relationship with the US.
The tariff increase has temporarily been halted, but a base duty of 10% still applies.
India is currently in negotiations with the US over a trade deal. Trump hinted that a zero-tariff agreement could be possible.
In April, to support the growth of the economy, Reserve Bank of India cut interest rates for the second time straight, dropping the rate of the Repo contract down from 8% to just 6%.
The economists are expecting another reduction in June. This could bring the rate down to 5,5% at the end of this easing cycle.
The central bank has room to move as inflation is still manageable.
Shilan Shah is the deputy chief emerging market economist of Capital Economics. He said that a rate cut next week would be due to falling inflation and downside growth risks.
The tensions between Pakistan and rural consumers are in the spotlight
The domestic headwinds are also persistent.
After the military clashes that took place between India and Pakistan in early this month, a fragile ceasefire is threatening to depress investor sentiment.
Analysts caution that new tensions may affect both household and investment spending.
Rural demand, however, is beginning to show signs of improvement.
NielsenIQ reports that rural sales accounted for almost 40% of all consumer products in the first quarter of this year. This is a sign of a change in consumption in the countryside, which accounts for a significant part of the country’s economy.
India is set to surpass Japan in the global GDP rankings
Even though the economy has slowed down, there is still structural optimism.
According to the International Monetary Fund, India is projected to surpass Japan by 2025 and become the fourth largest economy in terms of GDP.
Shah stated that India would always surpass Japan and Germany, given its demographic benefits and potential for productivity growth.
Dr. Manoranjan Sharma is the Chief Economist of Infomerics Valuations and Ratings.
While external uncertainty–such disruptions in supply chains and volatility on the energy markets–poses challenges, India continues benefiting from a strong performance of its service sector, stable banking, and improved manufacturing output through schemes such as PLI.”
India’s growth appears to be intact, despite the volatility. This is backed up by rising domestic consumption and India’s strategic position in global economics.
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