HDFC Securities has forecasted a moderation in India's GDP growth for the financial year 2024-25, projecting it to grow at 6.4%.
This forecast reflects concerns about a slowdown in urban demand and the absence of a substantial revival in private capital expenditure. Despite these challenges, rural demand and expected increases in government spending are expected to be crucial growth drivers.
The recent cut in India's growth forecast by the Reserve Bank of India (RBI) from 7.2% to 6.6% further underscores the economic challenges ahead.
This revision followed a disappointing 5.4% growth in real terms during the July-September quarter of the current financial year, which was significantly lower than the RBI’s initial forecast of 7%.
However, there are signs of optimism for the subsequent financial year. According to HDFC Securities’ report titled The Big Review 2024, GDP growth is expected to pick up to 6.7% in 2025-26.
The firm highlights that rural consumption is on a gradual rebound, bolstered by favourable monsoon conditions, a strong kharif crop, and good reservoir levels.
Additionally, the reduction in demand for the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) work suggests positive trends in the labour market. In contrast, urban consumption is facing a slowdown, mainly due to persistent inflation that has weakened the purchasing power of the urban poor.
High-ticket discretionary spending is faring better than consumption of staples, while the clampdown on unsecured retail lending is impacting credit-backed consumption, particularly in sectors like mobile phones and e-commerce.
The report emphasises that investments, particularly in rural areas, will continue to drive India's growth, while urban consumption is expected to be more subdued.
The challenges faced by urban consumers are compounded by the inflationary environment, which continues to dampen the financial outlook for many.
Dhiraj Relli, MD and CEO of HDFC Securities, noted that India’s GDP growth is likely to remain an outlier when compared to global economic trends.
He further pointed out that the country’s growth in the 2025-26 fiscal year is expected to be volume-driven, with key sectors such as Banking, Financial Services and Insurance (BFSI), industrials, cement, energy, and information technology (IT) expected to drive growth.
On the capital expenditure front, the report indicates that the Central government’s capex was subdued in the first half of 2024-25. However, it is expected to gain momentum in the second half of the year.
The government’s Economic Survey had earlier projected India’s GDP growth for 2024-25 at a range of 6.5-7%, which is slightly more optimistic than market expectations.
Real GDP growth, which is adjusted for inflation, is a critical measure of the economy's performance. India's economy had grown by 8.2% in the financial year 2023-24, maintaining its position as the fastest-growing major economy.
Despite a dip in the growth rate in the current fiscal year, India's economy remains resilient.
With a projected growth rate of 6.4% for 2024-25, India is expected to continue to outperform many global economies, provided that the government’s fiscal measures, rural consumption, and investment-driven sectors gain traction in the coming year.
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