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Latest GDP Estimates
Context:
The Ministry of Statistics and Programme Implementation (MoSPI) has released the “First Advance Estimates” (FAEs) for India’s GDP growth in the current financial year, which will conclude in March 2025 (FY25).
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- These Advance Estimates provide a forecast of India’s economic output for the financial year.
- MoSPI calculates these projections by analysing available data and historical trends, extrapolating them to predict the year-end figures, with input from various ministries, departments, and private agencies.
GDP Forecasts and Trends
- Nominal GDP: Nominal GDP measures the total market value of all final goods and services produced in a country within a specific period, using current market prices. It does not adjust for inflation.
- Projected at ₹324 lakh crore for FY25, a 9.7% growth over FY24.
- Equivalent to $3.8 trillion at an exchange rate of ₹85/USD.
- Lower than the Interim Budget estimate (₹328 lakh crore) and the full Union Budget forecast (₹326 lakh crore).
- Real GDP: It adjusts for inflation by using constant prices from a base year.
- Estimated at ₹184.9 lakh crore, representing 57% of nominal GDP.
- Reflects the actual production of goods and services after adjusting for inflation.
- Growth Deceleration: Real GDP growth since FY20 (pre-Covid) is at a CAGR of 4.8%, significantly below the historical average of 7% since 1991 reforms.
- Nominal GDP growth has also slowed to below 10%, compared to 13.5% annual growth from 2003-04 to 2018-19.
- Base Effect: The base effect occurs when comparing current economic data to previous periods that had unusually high or low performance.
- Recent high growth rates post-Covid are partly due to the low base effect from the GDP contraction in FY21.
- Over a longer period, growth remains subdued at under 5%.
Engines of GDP Growth
- Private Consumption (PFCE): Accounts for ~60% of GDP, making it the largest growth driver.
- Expected to grow 7.3% in FY25, but the CAGR since FY20 is just 4.8%, dampening overall GDP growth and private investments.
- Government Spending (GFCE): Contributes around 10% to GDP.
- Growth is weak, with just a 4.2% increase in FY25 and a CAGR of 3.1% since FY20, despite the expectation of higher spending during economic downturns.
- Investments (GFCF): Gross Fixed Capital Formation, accounting for ~30% of GDP, reflects spending on infrastructure and productive capacity.
- Expected to grow 6.3% in FY25 but has a low CAGR of 5.3% since 2014, indicating sluggish capacity expansion.
- Net Exports: India consistently imports more than it exports, creating a drag on GDP.
- The gap between imports and exports is narrowing, with negative growth rates in this category signaling improvement.
Challenges to GDP Growth
- Low Private Consumption Growth: Sluggish PFCE growth discourages businesses from investing in fresh capacity, even with tax incentives.
- Weak Government Spending: Government expenditure has grown at a modest pace, failing to provide the necessary boost during periods of economic stagnation.
- Stagnant Investment Growth: Businesses are hesitant to expand without a rebound in consumption demand.
- Public capital expenditure growth remains insufficient to fill the gap.
- Structural Issues in Net Exports: Persistent trade deficits weigh on GDP, though the shrinking gap offers a glimmer of hope.
While recent growth rates appear strong, they are largely statistical illusions due to the low base of the Covid-affected years. A sustained annual real GDP growth of over 7% is essential for India to achieve its aspiration of becoming a developed country by 2047.
