India’s economic growth is projected to decelerate significantly to 6.4% in FY25, marking the slowest expansion in four years, according to the government’s first advance estimates. This sharp decline from the 8.2% growth recorded in FY24 also falls short of the Reserve Bank of India’s revised forecast of 6.6%, raising widespread concerns across various sectors. The unexpected extent of the slowdown has intensified scrutiny over the factors contributing to this economic deceleration.
SECTORAL SLOWDOWN ACROSS THE BOARD
The broader moderation in GDP growth reflects a slowdown across key sectors. Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, noted that the decline demonstrates “sector-wide moderation.” Manufacturing growth is projected to fall from 9.9% in FY24 to 5.3%, while mining could drop from 7.1% to 2.9%. Similarly, construction growth is expected to slow from 9.9% to 8.6%, and electricity growth is forecast to decrease from 7.5% to 6.8%.
Agriculture, however, offers a positive note, with growth expected to rise to 3.8%, compared to 1.4% last year. Yet, this improvement is overshadowed by inflationary pressures eroding the purchasing power of urban households, particularly among lower-income groups, further dampening consumption and economic momentum.
Dr. Sharma highlighted the challenges for policymakers: “The twin pressures of slowing GDP growth and persistent inflation complicate the RBI’s efforts to strike a balance between fostering growth and curbing price pressures.”
RISING GLOBAL HEADWINDS
Beyond domestic factors, global economic headwinds are contributing to the slowdown. Weak demand in key export markets, ongoing geopolitical uncertainties, and elevated energy prices are weighing on India’s trade prospects. Exports, a critical growth driver, have faced significant challenges, with sectors such as textiles, gems, and jewelry witnessing contractions.
Moreover, foreign direct investment (FDI) inflows have been tepid in recent quarters, reflecting cautious investor sentiment amid global uncertainty. These trends underline the need for stronger policy interventions to stimulate export competitiveness and attract greater FDI.
EVOLVING CONSUMER PREFERENCES
Shifting consumer preferences are also reshaping India’s economic landscape. Dr. VP Singh from the Great Lakes Institute of Management emphasized the trend of “premiumisation,” where consumers increasingly prioritize higher-quality or luxury goods. “This trend is evident in the growing demand for premium automobiles and high-end consumer goods,” Singh explained.
Interestingly, this shift isn’t solely driven by higher incomes. For example, the surge in sales of affordable brands like Parle-G during the pandemic highlighted how changing consumer habits are influencing purchasing patterns. Businesses that adapt to these evolving preferences could unlock significant opportunities, even as these changes challenge traditional market dynamics.
INFRASTRUCTURE DEVELOPMENT AS A COUNTERBALANCE
The government’s continued focus on infrastructure development provides a silver lining amid the slowdown. Investments in railways, highways, and renewable energy projects are expected to support job creation and economic activity in the medium term. Mega initiatives such as the National Infrastructure Pipeline (NIP) and Gati Shakti Plan aim to boost long-term growth prospects by addressing bottlenecks and improving connectivity.
However, the immediate benefits of these initiatives may be limited, as infrastructure projects typically have long gestation periods. Accelerating project timelines and ensuring timely execution could help mitigate the impact of the economic deceleration in the short term.
MARKET AND ECONOMIC IMPLICATIONS
The downward GDP revision could dampen stock market sentiment, particularly in sectors closely tied to economic growth, such as manufacturing and financial services. Ajit Mishra, Senior VP at Religare Broking Ltd, remarked, “Lower growth expectations could lead to reduced corporate earnings forecasts, impacting investor confidence.”
Foreign institutional investors (FIIs) might also adopt a more cautious approach. “India’s long-term appeal remains intact, but slowing growth may prompt FIIs to diversify investments into other emerging markets,” Mishra added. To counter this, government-led fiscal measures and potential interest rate cuts by the RBI could help stabilize investor sentiment.
FUTURE OUTLOOK
Despite the challenges, India’s long-term economic fundamentals remain strong. A growing middle class, digital transformation, and demographic advantage position the country well for future growth. Policymakers must, however, navigate immediate obstacles by implementing targeted reforms, fostering innovation, and promoting inclusive development.
Nominal GDP is projected to grow by 9.7% in FY25, slightly higher than the 9.6% seen in FY24. However, sustaining this trajectory will depend on how effectively the government and RBI manage inflationary pressures, support key industries, and drive structural reforms.
As India’s economy adjusts to these transitions, the focus must remain on fostering resilience, boosting competitiveness, and addressing income disparities. By addressing these challenges head-on, India can ensure that its growth story continues on a robust and sustainable path.
