NIPFP Lowers India’s FY25 GDP Growth Estimate to 6.9-7.1%

The National Institute of Public Finance and Policy (NIPFP) has revised its growth forecast for India to 6.9-7.1% for FY25, citing a notable moderation in growth during the June quarter. This slowdown is attributed to a significant contraction in net exports and reduced government consumption due to the implementation of the model code of conduct.

Forecast Adjustment

The National Institute of Public Finance and Policy (NIPFP) has downgraded India’s GDP growth forecast for FY25 to 6.9-7.1%, down from its earlier estimate of 7.1-7.4% made in April.

Reasons for Revision

• Moderation in Growth : Notable growth moderation was observed in the June quarter, primarily due to a sharp contraction in net exports.
• Impact of Model Code of Conduct : Government consumption was also affected by the election model code of conduct, contributing to lower growth figures.

Capital Expenditure (Capex)

• A 19.5% decrease in capex was reported during April-August 2024 compared to the same period in 2023, attributed to the election code of conduct.
• Anticipation of a pickup in capex during the second half of FY25 is noted.

Economic Trends

• The NIPFP review indicated that the rate of economic expansion is reverting to a high growth trend of 7-8%, seen before the slowdown since 2017-18.
• A rebound in private consumption and investment is expected to sustain growth momentum.

Risks to Growth

• A potential decline in net exports due to an oil price shock poses a risk to the growth outlook.
• Sectors such as tourism, travel, and financial services show sluggish supply-side growth, with indicators of a slowdown in construction, capital goods, consumer durables, and contraction in mining and electricity.

Comparison with RBI’s Forecast

• The Reserve Bank of India (RBI) has maintained its growth projection for FY25 at 7.2%, citing strong consumption and investment momentum.

Inflation Projections

• NIPFP forecasts inflation for FY25 at 4.3%, slightly above the RBI’s target, with concerns over rising food inflation and rebounding core inflation.
• The RBI’s inflation projection stands at 4.5% for FY25.

Fiscal Deficit Outlook

• The budgeted fiscal deficit reduction target of 4.9% for the current financial year is on track, with the government expected to achieve its FY26 target of 4.5%.

International Monetary Fund (IMF) Outlook

• The IMF has kept its growth forecast for India unchanged at 7% for FY25, suggesting the economy has absorbed the pent-up demand from the pandemic and is reconnecting with its potential growth.
• The IMF also projects a headline inflation rate of 4.4% for FY25.