March 3, 2025
Growth in rural demand and urban consumption continues to boost economy
Food inflation expected to ease with strong kharif output and better rabi sowing
Revised GDP estimates show stronger-than-anticipated growth in FY23 and FY24
Manufacturing investment and output show sustained post-pandemic recovery
India’s Chief Economic Advisor (CEA) V Anantha Nageswaran has struck a confident note on the country’s economic trajectory, projecting that India remains on course to sustain its growth momentum despite a turbulent global outlook. He cited strong rural demand, a revival in urban consumption, and a stabilising inflation trend as key positives underpinning the economy.
Nageswaran pointed to the recent tax relief measures for the middle class and an anticipated uptick in economic activity due to large-scale events like the Maha Kumbh as contributing factors to India’s domestic demand. “Urban consumption has strengthened, and inflation is trending downward, though categories like food and gold have introduced some temporary distortions,” he said.
He noted that strong kharif yields, favourable rabi sowing, and high reservoir levels are expected to moderate food inflation further, adding that a seasonal dip in vegetable prices is already underway.
However, the global economic environment remains fraught with risks. Nageswaran flagged potential external shocks arising from policy shifts in major economies. “A stronger US dollar and rising Japanese interest rates could increase capital outflows from emerging markets, raise risk premiums, and tighten financial conditions,” he warned.
The CEA emphasised that recent upward revisions to nominal GDP growth figures help provide better alignment with tax revenue trends and corporate earnings. The growth rate for FY23 has been revised from 7% to 7.6%, and FY24 from 8.2% to 9.2%.
India’s nominal GDP is estimated to reach INR 331 trillion in FY25, which—based on the average exchange rate as of late February—translates to nearly US$3.924 trillion. “We are edging closer to the US$4 trillion GDP milestone,” Nageswaran observed.
In terms of sectoral performance, he noted that while the primary sector (mainly agriculture) has seen improvement, growth in the secondary sector (manufacturing and industry) has slowed. The services sector, however, has remained robust and has even increased its share of GDP.
For FY25, India’s real GDP growth target stands at 6.5%. With Q1 and Q2 already revised slightly upward and Q3 growth recorded at 6.2%, the economy would need to grow at around 7.6% in the final quarter to hit the annual target. Nageswaran acknowledged the challenge but said stronger export performance, particularly in non-petroleum merchandise goods, provided cause for optimism.
On the investment front, Nageswaran noted a dip in private capital expenditure during Q1 FY25, attributed to election-related uncertainties. However, investments picked up pace in Q2 and Q3, with the value of new projects announced by the private sector showing a marked increase.
Gross capital formation in manufacturing has risen significantly—from INR 9.2 trillion in FY21 to INR 15.1 trillion in FY24. Manufacturing output climbed from INR 117 trillion to INR 194 trillion, and gross value added rose from INR 28 trillion to INR 39 trillion over the same period.
Despite external headwinds, the CEA believes India’s strong domestic demand gives private players a good reason to ramp up investment. “Compared to other economies, the visibility of demand in India is a compelling signal for the private sector,” he concluded.
Source: Business Standard