India’s GDP Growth Projections for FY25 Revised Downward

India’s GDP growth projections for FY25 have been revised downward by multiple agencies, reflecting cautious optimism amid global and domestic challenges. CARE Ratings has lowered its FY25 GDP growth estimate from 6.8% to 6.5%, citing a contraction in corporate profitability, reduced public capital expenditure (capex), and sluggish urban consumption in the first half of FY25. Similarly, Fitch Ratings adjusted its forecast to 6.4% from earlier estimates of 7%, while the Asian Development Bank (ADB) pegged its projection at 6.5%.

Key Factors Behind the Revision

Weaker Corporate Performance: CARE Ratings highlighted a deeper contraction in corporate profitability in Q2FY25, which dragged growth.

Decline in Public Capex: Public infrastructure spending fell short of expectations in H1FY25, impacting economic momentum.

Urban Consumption Slump: High-frequency data indicated subdued demand in urban areas, reflecting hesitancy in private investments.

Global Headwinds: Fitch noted global uncertainties, including potential US-China trade conflicts, which add pressure to India’s external trade.

Projections for the Rest of FY25

Recovery in H2FY25: Agencies predict a rebound in the second half due to increased government capex, a strong kharif harvest, and fiscal consolidation measures. CARE Ratings expects GDP growth to pick up, supported by rural consumption.

Inflation and Monetary Policy: Food inflation is expected to moderate due to a robust kharif harvest and favorable rabi sowing. Inflation for FY25 is projected at 4.8%, prompting expectations of a 50-75 basis point policy rate cut in 2025.

Fiscal Deficit: Despite weaker corporate tax collection, strong income tax revenues are expected to keep the fiscal deficit at 4.8% of GDP, slightly better than the budgeted 4.9%.

Linking Past Growth Trends

India’s GDP growth has been resilient in recent years, recording 8.2% in FY24, 7.2% in FY23, and 8.7% in FY22. However, Q2FY25 saw a seven-quarter low of 5.4%, down from 6.7% in Q1FY25, indicating short-term challenges. Despite this, Fitch and CARE Ratings remain optimistic about long-term prospects, driven by strong domestic demand and structural reforms like digitalization and ease of doing business measures.

Outlook for FY26

Fitch and CARE Ratings project GDP growth to stabilize at 6.7% in FY26, backed by healthy bank and corporate balance sheets and continued infrastructure investment. India is expected to maintain its position as a high-growth economy relative to global peers, despite temporary setbacks.

Summary of the news