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Source: This post on India’s Real Growth Rate and Forecast has been created based on article “India’s real growth rate and the forecast” published in The Hindu on 18th January 2025.
UPSC Syllabus topic: GS Paper 3- Indian Economy
Context: This article evaluates India’s economic performance in 2024-25 and provides projections for its growth trajectory over the next five years. It highlights the country’s real and nominal GDP growth, government expenditure, and long-term development prospects.
What is the real and nominal GDP growth for 2024-25?
- The First Advance Estimates (FAE) of National Accounts for 2024-25 indicate:
- Real GDP growth: 4%
- Nominal GDP growth: 7%
- These figures are below the Reserve Bank of India’s revised estimates of:
- Real GDP growth: 6%
- Nominal GDP growth: 5%, as per the 2024-25 Union Budget.
How has GDP growth performed over the fiscal year?
- Real GDP growth in 2024-25 consists of:
- 6% growth in the first half.
- 7% growth in the second half.
- The 2024-25 growth of 4% is significantly lower than the previous year’s 8.2%.
- Manufacturing sector growth dropped sharply from 9% in 2023-24 to 5.3% in 2024-25.
- Government investment growth slowed, remaining negative at -12.3% after eight months of the fiscal year.
- Gross Fixed Capital Formation is expected to remain stable at 4% of GDP.
- Incremental Capital Output Ratio (ICOR) is assumed to be 1, suggesting a realistic 6.5% real GDP growth.
What role will domestic demand and government investment play?
- Global economic conditions are unlikely to change significantly, with India relying primarily on domestic demand.
- The Government of India must focus on accelerated capital expenditure, ensuring at least 20% growth over revised estimates for 2024-25.
What challenges does lower nominal GDP growth pose? What caused the dip in capital expenditure?
- A nominal GDP growth of 7% (vs. budgeted 10.5%) could impact the budgeted Gross Tax Revenue (GTR) of ₹38.4 lakh crore.
- However, GTR growth for the first eight months stood at 7%, indicating a potential buoyancy of 1.1, reducing the risk of a revenue shortfall.
- As of the first eight months, capital expenditure reached only ₹5.14 lakh crore, 2% of the budget target.
- Accelerated spending in the remaining four months may still fall short of the ₹11.1 lakh crore target, dampening overall growth.
What is India’s growth potential over the next five years?
- Real GDP growth is projected at 5%, with 4% IPD-based inflation, yielding 10.5%-11% nominal GDP growth annually.
- Growth could reach 7% in favourable global conditions with significant contributions from net exports.
Can India achieve developed country status?
- Sustained real growth of 5%, nominal growth of 10.5% -11 %, and an average annual exchange rate depreciation of 2.5% enable India to achieve developed country status within 25 years.
- However, growth must initially exceed 5% to compensate for the increasing base size.
How should 2024-25 growth be viewed?
- The 4% growth in 2024-25 aligns with India’s potential growth rate of 6.5%.
- The 2% growth in 2023-24 was an exception, not a trend.
- Sustained government capital expenditure and effective policy design will be critical for achieving consistent growth.
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