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The first advance estimate of India's Gross Domestic Product (GDP) for 2024-25, released by the Ministry of Statistics and Programme Implementation (MoSPI), shows a decrease in the real GDP growth rate to 6.4% from 8.2% in 2023-24.

 Latest GDP estimate for India in FY25

According to the Ministry of Statistics and Programme Implementation (MoSPI), India’s nominal GDP in FY25 is expected to reach Rs 324 lakh crore, showing a 9.7% growth over FY24. 

Nominal GDP includes the effect of inflation, reflecting the total value of goods and services produced at current prices. Real GDP adjusts for inflation, indicating the genuine growth in the economy's output.

It shows a decline in real GDP growth from 8.2% in 2023-24 to 6.4%. This is lower than the 6.5-7% range predicted by the Economic Survey in July 2024.  

What issues exist with India’s GDP estimates?

Several experts and institutions, including the IMF, have pointed out issues with India’s GDP data. They suggest that the use of the Wholesale Price Index (WPI) as a deflator instead of the more accurate Producer Price Index (PPI) is distorting real GDP figures.  

GDP has some limitations, including the exclusion of non-market transactions, the failure to account for income inequality, and the failure to indicate whether the nation's rate of growth is sustainable.

What has been the trend in India’s investment and consumption over the past decade?

Between 2004 and 2014, under the UPA government, India saw high investment growth, with real investment growing over 10%. In contrast, under the NDA government from 2014 to 2020, private investment growth slowed, with public sector investment outpacing private investment.

After the pandemic, real GDP and investment grew at an average rate of 7.2%, but private consumption growth slowed. The corporate tax cuts of 2019 failed to spark a sustained investment boom, unlike the investment and export-driven growth under UPA.

How has the post-pandemic recovery been for India’s economy?

The recovery post-pandemic has been marked by a return to pre-pandemic growth levels, largely driven by base effects. Private investment saw some growth, but this was not a structural change.

The overall investment climate remains subdued, and despite growth in GDP, the private sector has yet to significantly contribute to the kind of investment-led recovery expected by the government.

How is the slowdown impacting the fiscal situation?

The economic slowdown has negatively affected the government’s revenue collection, making it difficult to meet fiscal targets. As of November 2024, the government had only collected 56% of its projected net tax revenue.

Capital expenditure (capex) has also been slower than expected, with only half of the budgeted ₹11.11 trillion spent. The fiscal gap is concerning, as reducing public spending would further strain the economy, and increasing public debt is not a feasible option due to high interest payments.

Way Forward

To manage the fiscal deficit and boost capex, the government needs to focus on increasing taxes on wealth and profits, which will help to enhance both capital expenditure and welfare spending, and will provide a balanced approach to address the slowdown without deteriorating fiscal strain.

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Source: 

The Hindu