18 January 2025 : The Hindu Editorial Analysis

1. India’s real growth rate and the forecast

(Source – The Hindu, International Edition – Page No. – 6)

Topic: GS3 – Indian Economy

Context

The First Advance Estimates for 2024-25 project India’s real GDP growth at 6.4% and nominal GDP growth at 9.7%, below RBI’s estimates of 6.6% and 10.5%, respectively. This highlights challenges in economic performance and investment growth during the fiscal year.

Real and Nominal GDP Growth Estimates for 2024-25

• The annual growth rate of 6.4% consists of 6% growth in the first half of the year and 6.7% growth in the second half, showing improvement over Q2 growth of 5.4%.
• Compared to 2023-24, the GDP growth rate fell sharply from 8.2%, while the Gross Value Added (GVA) growth decreased moderately from 7.2% to 6.4%.
• The manufacturing sector experienced a significant decline, with its growth falling from 9.9% in 2023-24 to 5.3% in 2024-25.

Growth Prospects for 2025-26

• Investment levels, as measured by the Gross Fixed Capital Formation rate, have remained stable at around 33.4% since 2021-22 and are expected to continue at this level.
• A realistic GDP growth projection for 2025-26 is 6.5%, supported by stable investment levels and improved capital efficiency.
• Global economic conditions are not expected to change significantly, meaning domestic demand will remain the main driver of growth.
• Government investment spending is critical for sustaining growth, as reduced public investment negatively impacted 2024-25 GDP growth.
• Accelerated capital expenditure, with a target growth rate of 20% in 2025-26, can stimulate private sector investment and economic activity.

Fiscal and Revenue Challenges

• Lower nominal GDP growth in 2024-25 could create challenges for achieving revenue targets, such as the Gross Tax Revenue (GTR).
• Tax collection growth in the first eight months was better than expected, which may reduce potential shortfalls.
• Government capital expenditure has been slower, with only 46.2% of the Budget target achieved by the eighth month of the fiscal year.
• Accelerating government capital expenditure in the remaining months is essential for meeting growth and development objectives.

Medium- to Long-Term Growth Prospects

• India’s real GDP is projected to grow at 6.5% over the next five years, aligning with international projections.
• A combination of 6.5% real growth and moderate inflation of 4% can result in steady nominal GDP growth between 10.5% and 11%.
• Sustaining this growth trajectory could help India achieve developed country status in about 25 years.
• Achieving consistent high growth rates may become challenging due to the increasing economic base, requiring targeted efforts to enhance productivity and investment.
• The growth rate of 6.4% in 2024-25 reflects India’s potential growth capacity, while the 8.2% growth in 2023-24 was an exceptional occurrence.

Conclusion

• India’s economic performance demonstrates resilience and aligns with its potential growth trajectory, despite recent challenges.
• Consistent investment and focus on domestic demand will be key to sustaining long-term growth.

PYQ: Do you agree that the Indian economy has recently experienced a V-shaped recovery? Give reasons in support of your answer. (250 words/15m) (UPSC CSE (M) GS-3 2021)

Practice Question:  Discuss the factors affecting India’s GDP growth as per the 2024-25 estimates. Highlight the role of government capital expenditure in sustaining economic growth. (250 Words /15 marks)

, India, and the U.S. can build an unstoppable democratic coalition capable of countering autocratic powers and ensuring a secure, prosperous future.

For more such UPSC-related The Hindu editorial analysis: –17 January 2025 : The Hindu Editorial Analysis