India’s economy poised for 6.5% growth in FY25: Finmin

The infrastructure sector is expected to gain traction, with cement, steel, and electricity industries benefiting from post-monsoon demand and government-led initiatives.

India's economic growth is projected to reach around 6.5 percent in real terms for FY25, supported by strong rural and urban demand, improved capital formation, and robust government spending, the Finance Ministry said on December 26.

“On the demand side, rural demand remains resilient, as highlighted by the 23.2 percent and 9.8 percent growth in two- and three-wheeler sales and domestic tractor sales, respectively, in October-November 2024. Urban demand is picking up, with passenger vehicle sales registering YoY growth of 13.4 percent in the same period and domestic air passenger traffic witnessing robust growth. Consequently, we expect the economy to grow at around 6.5 percent in real terms in FY25,” the Finance Ministry said in its Monthly Economic Review (MER) for November 2024.

The economy is expected to perform better in the October-March period, following a 5.4 percent GDP growth rate in Q2. “Growth in October-March is likely to be better than in H1. Food price pressures are likely to decline gradually, supported by an optimistic farm sector outlook,” the report noted.

Government capital expenditure is a major growth driver, with increased spending boosting infrastructure projects and capital goods sectors. “There are signs of capital formation growth rebounding early in H2 FY25. The order books for infrastructure and capital goods grew sharply in FY24 and H1 FY25, indicating a pent-up investment impulse that will play out in the quarters ahead,” the report added.

The infrastructure sector is expected to gain traction, with cement, steel, and electricity industries benefiting from post-monsoon demand and government-led initiatives.

FY26 Emerging Uncertainties

Looking ahead to FY26, the Finance Ministry warned of fresh uncertainties stemming from global factors. “Global trade growth is looking more uncertain than before. Elevated stock markets, a strong US dollar, and policy rate adjustments in the United States are pressuring emerging market currencies,” it said.

These uncertainties, coupled with evolving geopolitical dynamics, could impact India’s economic trajectory despite strong domestic fundamentals. “Sustaining growth will require deeper commitments from all economic stakeholders,” the ministry emphasised.

Inflation 

On inflation, the Reserve Bank of India (RBI) has projected CPI inflation at 4.8 percent for FY25, with Q3 and Q4 inflation at 5.7 percent and 4.5 percent, respectively. “The optimistic farm sector outlook generates hope that food price pressures will decline gradually,” the report stated.

Urban and rural demand indicators point toward a steady recovery. Rural demand was bolstered by 23.2 percent and 9.8 percent growth in two- and three-wheeler sales and domestic tractor sales, respectively, in October-November 2024. Urban demand also gained traction, with passenger vehicle sales recording a 13.4 percent YoY growth and domestic air passenger traffic witnessing robust expansion.

“Hiring and compensation practices in the corporate sector have contributed to the moderation of urban consumption growth. However, with the RBI lowering the cash reserve ratio from 4.5 percent to 4 percent in December 2024, credit growth is expected to revive,” the report added.

Labour Market Signals Recovery

The labour market outlook remains strong, driven by a rise in new employment opportunities. The Employees’ Provident Fund Organisation (EPFO) added 7.5 lakh new members in October 2024, with 58.5 percent of them being first-time job seekers in the 18–25 age group.

According to the TeamLease Employment Outlook Report, net employment is expected to grow by 7.1 percent in H2 FY25, led by sectors like logistics, electric vehicles (EVs), and agriculture. Similarly, the ManpowerGroup Employment Outlook Survey revealed that India has the strongest hiring sentiment globally, with a net employment outlook of 40 percent for Q4 FY25.

“AI-ML, oil and gas, FMCG, and global capability centres are the key drivers of hiring activity,” the report highlighted.