The Indian economy in urban sector is grappling with the dual challenge of high inflation and slowing credit growth.
India is currently the world’s fastest-growing and fifth-largest economy, and is slated to become the third largest, behind the United States and China, by 2027.
But it may take a longer time if the slow growth rates persist.
Focus automatically shifts to Budget 2025-26 to be presented in Lok Sabha by Finance Minister Nirmala Sitharaman on Feb 1. The attention will also shift gradually towards the corporate performance for Q3 and Q4.
It is expected that nominal GDP growth by the end of coming fiscal 2025-26 will be at 10.5 per cent and real GDP growth at 6.8 per cent.
“The decline in government capital expenditure—a key driver of post-pandemic recovery—during the second quarter is unlikely to be compensated for in the rest of the fiscal,” says Dharmakirti Joshi, chief economist with Crisil.
“Private sector investment remains sluggish despite favourable conditions. Little surprise, therefore, that investment growth slowed down to 6.4 per cent this fiscal from 9 per cent in the previous one.”
Urban consumption has also been hit hard, with inflation eroding the purchasing power of the urban poor.
The fact of the matter is the second quarter of this fiscal had already given enough indications of slower growth. India’s GDP growth for the second quarter was 5.4 per cent, down from 6.7 per cent in the first quarter and way below the 8.1 per cent in the second quarter of the previous fiscal.
In fact, growth was the lowest in nearly two years. Thus in several quarters concerns were raised and agencies did also revise their growth estimates for the country.
However, despite a slowdown in real GDP growth, per capita nominal GDP in India is expected to increase significantly in FY25, by at least Rs 35,000 more than fiscal 2023-24.
Some experts also say that Agriculture and allied activities are likely to grow by 3.8 per cent in 2025-26 (1.4 per cent more from the previous year).
The Service sector is likely to grow by 7.2 per cent in 2025-26 compared to a growth of 7.6 per cent in 2024-25.
It goes without saying that the slowdown could make the job scenario pretty bad. Only a high rate of growth, sustained over several years, can ensure enough jobs for millions of the country’s skilled and educated youth.
The agriculture is poised for a noticeable improvement with a growth projection of 3.8% compared to 1.4% last year. But the manufacturing growth is projected to fall to 5.3% from 9.9%.
The mining is also expected to grow slower at 2.9% compared to 7.1%.
The slowest growth rate since the pandemic manifests moderation across key sectors and constitutes a significant drop from the 8.2% growth in fiscal 2024-25.
But it has to be noted that the private consumption has performed relatively well over a weak base, matching the overall GDP growth.
In the last fiscal, private consumption grew at half the rate of GDP growth.
Rural consumption, which constitutes about 60 per cent of India’s total private consumption according to the Household Consumption Expenditure Survey 2023-24, will receive a boost from healthy kharif production and promising prospects for the rabi season.
The construction sector is set to grow at 8.6%, down from 9.9%, and electricity growth is estimated at 6.8%, lower than the previous year’s 7.5%.
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