Deloitte India's latest Economic Outlook projects India's GDP growth at 6.5% to 6.8% for the fiscal year 2024-2025. This projection is slightly more conservative than the previous one due to the prevailing international trade and investment conditions. Deloitte also forecasts that the GDP growth rate will rise slightly in the following year from 6.7% to 7.3%.
However, India's recent second-quarter performance for the current fiscal year has raised concerns. GDP expanded by 5.4% year over year in Q2 2024-25 and missed market consensus. This is the second quarter of below-expected growth, indicating a difficult time in the economy's recovery.
The Reserve Bank of India (RBI) revised its estimated growth rate of 6.6 % for the year while the National Statistical Office (NSO) has predicted a 6.4% growth rate for the current fiscal. According to economists, there are several reasons for the economic slowdown. Rumki Majumdar, the economist at Deloitte India, noted that election-related instabilities of the first quarter, followed by adverse weather conditions, hampered construction and manufacturing activities. These factors led to a lower-than-expected gross fixed investment which was 37.3% of the government's annual targets in the fiscal year's first half.
Majumdar also noted that certain factors, such as a softer tone to the global growth outlook and more hawkish tones from the US and Indian monetary authorities, might prevent the synchronized rebound of the Western economies that was earlier expected.
However, Deloitte identifies the subsequent areas of resilience within India's economy: Rural consumption is also vigorous due to favorable agricultural performance and increasing disposable income in rural areas. The service sector, especially finance, insurance, real estate, business, and other services, still expands and contributes to urban income and service exports.
India's advancement in the Global Value Chains is also a good indicator. This has enhanced the proportion of high-value goods that the country exports, especially electronics and machinery, indicating the country's position in the international market. Furthermore, the Indian capital markets have shown great stability. Between October and December 2024, Foreign Institutional Investors (FIIs) withdrew considerably due to geopolitical tensions, the slow pace of earnings, and China's actions. Nevertheless, the Sensex remained almost flat due to the higher participation of Domestic Institutional Investors (DIIs), which contributed to lowering the vulnerability of the Indian capital market to FII outflows.
The Indian economy is thus faced with the problem of how best to steer its growth in the face of slow down and high inflation. Food prices have been a significant concern in many economies and thus continue to interest policymakers. The repo rate is at 6.5%, which is unchanged and meant to contain inflation, which is hoped to be stabilized at 4% sustainably. The RBI's policy course of action is to stabilize inflation while still ensuring growth can be achieved, but the future is unclear as this global and domestic landscape continues to develop.