Instead of glossing over the numbers or sugarcoating the reality, we now have the clarity of data—it’s evident that our economy is slowing. The Ministry of Statistics and Programme Implementation (MOSPI) has projected India’s GDP growth at 6.4% for FY25 (current fiscal), a marked decline from 8.2% in FY24.
This slowdown, the sharpest since the pandemic, indicates vulnerabilities in the Indian economy. The silver lining is that this awareness gives us a starting point to have honest discussions about how to stage a rebound, and not to mistakenly take the foot off the pedal. This is a wake-up call as the government prepares the Union Budget amidst tightening fiscal constraints and mounting global uncertainties.
Manufacturing Weakness
The manufacturing sector, touted as central to India’s ambition of becoming a global production hub, is set to grow by just 5.3% in FY25, down from a robust 9.9% in FY24. This sharp deceleration raises concerns about the effectiveness of flagship initiatives like Make in India and the production-linked incentive (PLI) schemes.
Manufacturing is a key driver of job creation and value addition; a prolonged slowdown in this sector could lead to weakened employment prospects and stifled industrial competitiveness. If we cannot reinvigorate our manufacturing base, we risk falling behind in global supply chains at a time when geopolitical realignments favour diversification away from China.
Services Sector: Losing Momentum
The services sector, which contributes over half of India’s GDP, is projected to grow by 7.2% in FY25, down from 7.6% in FY24. Within this sector, sub-segments like trade, transport, and financial services are experiencing notable slowdowns. For instance, growth in trade, hotels, and transport is expected to dip to 5.8%, while financial and real estate services may only grow at 7.3%, compared to 8.4% in FY24.
This decline in service growth could have ripple effects on consumption patterns and urban job creation, highlighting a need for policies that stimulate demand and streamline service delivery. If services falter, it jeopardises the multiplier effect they create across the economy. Correlate this with RBI data. Credit growth, a key driver of economic activity, has slowed significantly. Incremental credit by scheduled banks grew by just Rs11.5 lakh crore as of mid-December 2024, compared to Rs 21 lakh crore in the same period last year.
This contraction reflects both weakened demand and cautious lending practices. The significance here is clear: without a robust credit flow, consumption and investment will remain subdued, pushing the GDP lower.
Agriculture: A Rare Bright Spot
Agriculture is expected to grow at 3.8% in FY25, a significant improvement from the 1.4% growth recorded in FY24. This recovery signals stronger rural demand and improved productivity, which could provide some counterbalance to the overall economic slowdown. However, agriculture alone cannot bear the burden of sustaining the economy. Policymakers must capitalise on this momentum by prioritising investments in rural infrastructure, storage, and agri-tech to amplify gains. Strong rural demand must be harnessed to boost broader consumption and support industrial recovery.
Investment decline: A Warning Signal
Gross capital formation growth has fallen to 7.2% in FY25 from 9.9% in FY24, with real capital formation growth at a modest 6.4%. Investment is the backbone of long-term economic growth, and any deceleration here could have profound consequences. A slowdown in private capital expenditure suggests declining business confidence, which could further dampen job creation and productivity gains. The government must incentivise private investment through policy clarity, streamlined regulations, and targeted tax reforms to reverse this worrying trend.
Global Headwinds, Domestic Risks
India’s slowdown is compounded by global challenges. A resilient US economy and a stronger dollar have led to significant capital outflows, putting pressure on the rupee and complicating import bills. Additionally, the threat of new tariffs under a forthcoming US administration adds uncertainty to India’s export prospects. Domestically, the government must strike a delicate balance between fiscal consolidation and growth-oriented spending in the upcoming Union Budget.
The projected nominal GDP of Rs 324.11 lakh crore falls short of the budgeted RS 326.37 lakh crore, raising questions about fiscal deficit management. While this seems unlikely, theoretically, if the deficit slips to 5% of GDP, it could jeopardise India’s credit ratings and inflate borrowing costs, further constraining policy options. But then, it is expected that government would lower its capital spending to achieve its target limit.
Time To Rebound
While we celebrated consistent economic growth, this slowdown demands introspection. Rather than indulging in hashtags or distractions that divert focus, we must prioritise meaningful discussions on what it will take to get the economy back on track. This can only be achieved through honest and candid conversations. Hopefully, this data will spark genuine introspection rather than devolve into finger-pointing or blame games—a sincere hope from the world of polity and policymaking. India cannot rely on past momentum to sustain its ambitions of becoming a $5 trillion economy.
The slowdown across manufacturing, investment, and services highlights deep structural challenges that require bold, immediate action. Policymakers must focus on stimulating private sector participation. India’s economic aspirations are too critical to be derailed by complacency. Given the latest economic data, there would be anticipation of a substantial capital expenditure push in the upcoming Union Budget to drive growth and infrastructure development. The government must leverage the Union Budget as a platform to outline a clear, coherent strategy to revitalise growth. Anything less would be a missed opportunity, with consequences too dire to ignore.
Dr. Srinath Sridharan is a Corporate advisor & Independent Director on Corporate Boards. X : @ssmumbai
