India’s Economy Shows Strong Q1 Growth, But Full-Year Forecast Slows to Four-Year Low
New Delhi – India’s economy experienced robust growth of 7.4% in the January-March quarter, a significant increase from the previous quarter’s 6.2% and well above analyst expectations. However, the projected growth for the full fiscal year 2024-25 (April-March) is 6.5%, which would mark the slowest growth in four years.
Despite this slowdown, India remains the world’s fastest-growing major economy, though its pace has decreased from the 9.2% high recorded in the 2023-24 financial year. The recent strong performance benefited from solid farm activity, consistent government spending on infrastructure, and improved rural demand. Conversely, manufacturing and new private sector investments remained subdued.
While a strong winter harvest boosted rural growth, it hasn’t been enough to offset the persistent weakness in urban consumption, which has been hampered by high unemployment and lower wages. India’s economic growth continues to heavily rely on government infrastructure spending in the absence of significant private investment.
Looking ahead, economists anticipate some domestic tailwinds. Aditi Nayar, an economist with ratings agency Icra, expects growth to benefit from the government’s recently announced income tax cuts, potential monetary easing by the Reserve Bank of India (RBI), predictions of an above-normal monsoon, and lower food inflation. The RBI is expected to cut interest rates for the third consecutive time later in June to further stimulate growth.
However, global uncertainties are projected to weigh on export demand. These include U.S. President Donald Trump’s trade policies. India is currently negotiating a trade agreement with the United States, expected to conclude by fall. The U.S. had imposed tariffs of up to 27% on Indian goods in April, with a 90-day pause ending on July 9.
Economists forecast that GDP growth in the current fiscal year (2025-26) could further decelerate to 6% due to these global slowdown concerns, potentially delaying new private capital spending. The International Monetary Fund (IMF) projects global growth to fall to 2.8% in 2025 and 3% in 2026.
Recent data from Icra showed that private sector expenditure, as a component of India’s total investments, dropped to a 10-year low of 33% in the last fiscal year. Furthermore, net foreign direct investment (FDI) into India in 2024-25 fell to $0.35 billion, its lowest in two decades, as increasing outward foreign investment and repatriations by Indian companies offset inward investment.
Prime Minister Narendra Modi’s government has been actively promoting India as a global manufacturing hub. While some companies, like Apple, have indicated shifting iPhone production from China to India, trade analysts caution that such manufacturing investments could stall if the U.S. and China proceed with tariff rollbacks, as recently agreed upon.
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