Ind-Ra raises FY25 GDP growth estimate to 7.1 pc: Strong government-private investment propel economic momentum

New Delhi [India], May 6 : India Ratings and Research (Ind-Ra) has revised its GDP growth estimate for FY25 upwards to 7.1 per cent, marking a significant increase from its earlier forecast of 6.5 per cent.
The new projection slightly exceeds the Reserve Bank of India's (RBI) forecast of 7.0 per cent. The agency's forecast indicates higher growth than RBI's for the first and fourth quarters of FY25 but lower for the second and third quarters.
The improved growth outlook is supported by several factors, including sustained government capital expenditure, deleveraged corporate and banking sector balance sheets, and the emerging private corporate capital expenditure cycle.
Despite these positive indicators, there are constraints such as uneven consumption demand and challenges in the export sector due to global headwinds.
Ind-Ra expects private final consumption expenditure (PFCE) to grow by 7.0 per cent year-on-year in FY25, marking a three-year high. However, current consumption demand remains skewed, driven largely by goods and services consumed by higher-income households.
Rural consumption has been weak, but Ind-Ra anticipates support from above-normal monsoon rainfall predicted by the India Meteorological Department and increased procurement targets set by the Food Corporation of India.
Government capital expenditure continues to drive investment demand, with Gross Fixed Capital Formation (GFCF) expected to grow by 8.5 per cent year-on-year in FY25.
The union government has budgeted RS 11.1 trillion for capital expenditure, while states have budgeted RS 9.5 trillion, indicating a sustained focus on infrastructure development.
Private sector greenfield capital expenditure, particularly in sectors like crude oil, base metals, power, and telecom, is also showing signs of revival.
Ind-Ra forecasts goods and services exports to grow by 6.6 per cent year-on-year and imports by 8.8 per cent year-on-year in FY25, compared to 1.5 per cent and 10.9 per cent, respectively, in FY24.
However, challenges such as high inflation affecting household purchasing power, restrictive trade policies, and geopolitical uncertainties continue to weigh on India's exports.
The services sector is expected to grow by 7.8 per cent year-on-year in FY25, with financial services, real estate, and professional services growing by 8.1 per cent year-on-year.
Industrial growth is projected at 7.0 per cent year-on-year, driven mainly by construction and electricity/utility sectors. The agricultural sector is expected to benefit from above-normal monsoon rainfall, with growth forecasted at 3.6 per cent year-on-year.
Ind-Ra expects average retail and wholesale inflation to come in at 4.6 per cent and 2.9 per cent, respectively, in FY25.
Fiscal deficit targets set by the government indicate a commitment to fiscal consolidation, with the targeted deficit of 5.1 per cent of GDP in FY25 deemed achievable.
The agency expects the current account deficit to remain under control at USD 46.3 billion (1.2 per cent of GDP) in FY25, supported by steady remittances and software exports.
Flows in the capital account are estimated to improve, leading to a net addition of USD 81.3 billion in forex reserves.
Ind-Ra predicts the Indian rupee to average 85.10/USD in FY25, with a depreciation of 2.8 per cent. However, this forecast includes potential risks from global commodity prices and supply chain disruptions.
If these risks do not materialize, the rupee's depreciation could be lower at 2.2 per cent, averaging 84.60/USD in FY25.