The first advance estimates released by the National Statistical Office peg India’s real GDP growth for the fiscal year 2024-25 at 6.4%, a sharp deceleration from 8.2% in the previous year and the slowest pace since the pandemic. This reflects a broader global slowdown, as well as domestic factors like uneven monsoons impacting agriculture, elevated inflation weighing on urban consumption, and slower government capital expenditure in the first half of the year. Most sectors are projected to see slower growth, with manufacturing hit the hardest, estimated to grow just 5.3% compared to 9.9% last year.
While the headline numbers have raised concerns among analysts and prompted calls for rate cuts, policymakers remain cautiously optimistic about the underlying economic momentum. The slowdown is not as structural, with growth expected to pick up in the second half, buoyed by festive demand, election spending and accelerating government capex. Encouragingly, indicators like GST collections, PMI readings and advance tax payments continue to show healthy traction. The IMF forecasts India to grow 7% for the full year, still the highest among major economies.
Looking ahead, most institutions project India’s growth to stabilise in the 6.5-7% range over 2025 and 2026, outpacing global averages. Key drivers include a young demographic, expanding middle class, infrastructure investments, digitalisation push, and rising global demand for high-value manufacturing and service exports. Government policies to catalyse growth include the production-linked incentive schemes, National Infrastructure Pipeline and targeted fiscal support for vulnerable segments.
Domestic consumption, which comprises over 55% of GDP, remains the bedrock of India’s growth story. While impacted by high inflation, consumption showed signs of revival in late 2024, with auto sales, consumer durables and credit offtake picking up pace. Rural demand, which lagged the urban recovery, is expected to get a boost from healthy winter crop output and likely moderation in food prices. Rising incomes, social welfare schemes and growing financial inclusion should support broad-based consumption over the medium term.
On the investment front, the government continues to do the heavy lifting, with the Centre and States budgeting record capital outlays in 2025-26. This is crucial to crowd-in private investments, which have remained tepid amid capacity overhang and global uncertainties. However, several enabling factors- record corporate deleveraging, healthy bank balance sheets, PLI-led manufacturing resurgence and a multi-year capex cycle across core sectors- set the stage for a potential revival in the private investment cycle. Much will depend on global stability, policy continuity and expediting structural reforms.
India’s external sector faces headwinds from slowing global growth and ‘friend-shoring’ shifts in trade flows amid great power competition. While exports hit a record $422 in 2022-23, growth has tapered off, contracting in October-November 2023.However, the outlook is not gloomy across the board, with high-value segments like electronics, chemicals, pharmaceuticals and engineering goods showing resilience and market share gains. Service exports of $300 billion in 2024-25 is a reliable growth engine and source of current account funding. Overall, India’s trade deficit is expected to moderate in 2025-26 as commodity prices ease and domestic demand picks up.
Managing inflation, currency and fiscal risks remain key to macroeconomic stability. Retail inflation, after staying above RBI’s 6% tolerance limit for much of 2024, is expected to glide towards the 4% target by early 2025, as food and commodity prices moderate. The RBI is likely to opt for a gradual easing cycle once core inflation looks firmly under control. A measured pace of rate cuts will also prevent disruptive capital outflows and undue pressure on the rupee, which has outperformed most peer currencies in 2024. On the discal front, the government appears committed to the 4.5% deficit target for 2025-26, using buoyancy in tax revenue to fund growth-oriented spending while keeping a check on sticky subsidies.
An area where India shines amid global turmoil is its financial sector stability, with well-capitalised banks, reduced non-performing assets, and healthy capital markets, foreign investors pulled out $15 billion from equities in 2024, but this was more than offset by record domestic inflows from retail investors and mutual funds. The growing financialization of savings and rising clout of domestic funding sources provide India an important buffer against external volatility. The 2025 Budget is expected to further entrench this trend through incentives and financial education drives.
In sum, while India will not remain immune to global crosswinds, its domestic economic engines and proactive policy landscape provide the foundations for steady and sustainable growth. By prioritising macroeconomic stability, driving manufacturing-led growth, reviving investments, and harnessing its demographic dividend, India can turn this period of global realignments into an opportunity to emerge stronger and play a larger role in the new economic order. As the world puts behind an age of turmoil, India’s resilient rise offers a source of optimism and stability for the global economy.