New Delhi: India’s economy is likely to grow by 6.5 per cent in the current and next financial years due to a slowdown in private consumption expenditure and gross fixed capital formation in the September quarter. This was mainly because two domestic demand components – private final consumption expenditure and gross fixed capital formation – together accounted for the 1.5 percentage point decline, according to the EY report.
Real GDP growth fell to a seven-quarter low of 5.4 per cent in the July-September second quarter of the current financial year 2024-25. This was compared to 6.7 percent in the previous quarter. “An outstanding feature of demand is the slowdown in investment, which is reflected in growth in gross fixed capital formation. This growth is estimated at 5.4 per cent in 2QFY25, which is a six-quarter low. Apart from the fact that private investment demand has increased, there has been a contraction in growth in investment spending by the Indian government. 6, which was negative at (-)15.4 per cent in the first half of FY25,” the report said.
The economy remained negative at (-)8.4 percent in October 2024, which means that government investment spending growth remained negative at (-)14.7 percent in the first seven months. “In fact, to meet the government’s budget target of 17.1 percent growth in capital expenditure over the FY24 CGA actual, we now need a 60.5 percent growth in the remaining five months of FY25,” the report said.
EY Economy Watch December 2024 estimates India’s real GDP growth at 6.5 percent for FY25 (April 2024 to March 2024 fiscal year) and FY26. It also highlights the importance of improving India’s fiscal liability framework to achieve the Developed India Vision by 2047-48. “A recalibrated approach is imperative for sustainable debt management, removing government concessions, and driving investment-led growth, paving the way for India’s transformation into a developed economy,” it said.
“As the global situation remains uncertain and global trade is likely to be fragmented, India may have to rely heavily on domestic demand and service exports. In the medium term, India’s real GDP growth prospects can be kept at 6.5 percent per annum if the Government of India (GoI) accelerates its capital expenditure growth in the remainder of the current fiscal year and comes up with a medium term. Investment pipeline with the participation of the Government of India and State Governments and their respective public sector organizations and the private corporate sector,” it added.
The earlier 2019 National Infrastructure Pipeline (NIP) was revised for the period up to 2030 with revised targets for priority sectors including roads, smart cities, railways, power, and renewable energy. Construction would be appropriate. “Investment targets for the three major investors namely the Government of India and State Governments and their respective public sector undertakings, and the private corporate sector should be assessed on their performance in previous NIP financing,” the report said.