Indian real growth and forecast

• The First Advance Estimates (FAE) of National Accounts for 2024-25 show a real GDP growth of 6.4% and a nominal GDP growth of 9.7%.

• The real GDP growth is expected to be 6% in the first half and 6.7% in the second half, a clear improvement over the Q2 growth of 5.4%.

• The sharp fall in 2024-25 annual GDP growth from the previous year at 8.2% is seen only in the case of GDP.

• The difference between 7.2% and 6.4% is much less, with the manufacturing sector suffering a sharp fall in sectoral growth from 9.9% in 2023-24 to 5.3% in 2024-25.

Growth Prospects for 2025-26

• The Gross Fixed Capital Formation rate at constant prices has ranged between 33.3% and 33.5% during 2021-22 to 2024-25.

• The average Incremental Capital Output Ratio (ICOR) has been marginally higher than 5 in recent years.

• Assuming ICOR to be 5.1 in 2025-26, a 6.5% real GDP growth is considered realistic.

• The Government of India has to ensure no relaxation in its investment expenditure.

• The budgeted Gross Tax Revenue (GTR) of ₹38.4 lakh crore may not be realised if the budgeted buoyancy of 1.03 is maintained.

• The main reason for the dip in overall real GDP growth in 2024-25 is the level of the Government of India’s capital expenditure.

Medium- to long-term growth prospects

• The best India can hope for is a steady real GDP growth rate of 6.5% over the next five years.

• If a real growth of around 6.5% and a nominal growth in the range of 10.5%-11% are maintained over the long run with an average exchange rate depreciation of 2.5% per annum, India should be able to reach a per capita GDP level consistent with a developed country status in the next two and half decades.