The GDP growth is expected to be around 6.3 per cent in the current financial year, slightly lower than the government’s estimate of 6.4 per cent, due to factors such as weak demand, the SBI research report said on Wednesday.
According to the first advance estimates (FAE) of National Income for 2024-25 released by the National Statistics Office (NSO) on Tuesday, India’s economic growth rate is projected to slip to a four-year low of 6.4 per cent in 2024-25, owing to a poor performance by the manufacturing sector and subdued investments.
Historically, the difference between the Reserve Bank of India (RBI) and NSO estimates has been in the range of 20-30 basis points, and hence the 6.4 per cent estimate for the 2024-25 financial year is within expected and reasonable limits, the SBI research report Ecowrap stated.
"We, however, believe that GDP growth for FY25 could be around 6.3 per cent, with a downward bias," the report noted.
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The report, authored by Soumya Kanti Ghosh, Group Chief Economic Adviser at the State Bank of India (SBI), further stated that per capita nominal GDP is expected to increase significantly in the current financial year, ending March 2025, by Rs 35,000 compared to 2022-23. This is despite a slowdown in real GDP growth and nominal GDP growth remaining almost stagnant.
The FAE of GDP generally indicates a slowdown in aggregate demand in 2024-25, the report observed.
The components that have positively contributed include government consumption, which recorded growth of 8.5 per cent in nominal terms (4.1 per cent in real terms). Exports have also performed well, with positive growth of 8 per cent (5.9 per cent in real terms).
However, a major concern is the marked slowdown in gross capital formation. The SBI study highlighted that nominal growth in capital formation declined by 270 basis points to 7.2 per cent.
“The overall picture is that demand remains weak, and the sequential slowdown in FY25 at 6.4 per cent is an upper limit, while actual growth is likely to be below this estimate," the report stated.
Additionally, the report mentioned that the fiscal deficit as of November 2024 stood at Rs 8.5 lakh crore, or 52.5 per cent of the Budget Estimates (BE).
Based on the revised GDP figures, if tax receipts grew as per the BE and government expenditure was reduced due to low capital expenditure (CAPEX), the fiscal deficit would be 4.9 per cent of GDP in 2024-25, according to the SBI research report.
However, if the government adheres to the fiscal deficit target of Rs 16.1 lakh crore, then with the revised GDP figures, the deficit as a percentage of GDP would stand at 5 per cent in 2024-25, the report added.
In the Union Budget, the government had projected a reduction of the fiscal deficit to 4.9 per cent of GDP in the current financial year.
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