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Domestic economic activity to steer growth in 2025-26

- DHARMAKIRTI JOSHI

India's gross domestic product (GDP) growth for 2024-25 at 6.5 per cent, slightly above its initial estimate of 6.4 per cent but below that of forecasters and the Reserve Bank of India (RBI).

The NSO's estimate marks a return to the pre-pandemic decadal trend growth rate, following an above-trend average growth of 8.8 per cent between financial years (FY) 2021-22 and 2023-24, driven by higher interest rates and lower fiscal stimulus. After the initial surge, the investment-to-GDP ratio is also stabilising.

India's recovery from the Covid-19 pandemic has been marked by sharp upward revisions to growth estimates, but from a low base—the economy had contracted 5.8 per cent in FY21. The government's focus on infrastructure development, rapid digitalisation, and strengthening bank balance sheets helped script the fast rebound.

In FY26, we expect GDP to grow 6.5 per cent, driven by domestic factors, even as global uncertainties rise with the onset of tariff wars. S&P Global, in its recent outlook, notes that Asia-Pacific emerging economies (ex-China) are likely to be supported by domestic demand, leading to only a mild downward revision in the growth outlook for 2025.

That said, risks to forecasts at this juncture are tilted to the downside.

High-frequency data is already flashing a slowdown in global growth. The Organisation for Economic Cooperation and Development recently revised its global GDP growth forecast for FY25 to 3.1 per cent from 3.3 per cent. In addition, world trade is expected to decelerate in the wake of increasing protectionism and insular industrial policies.

The S&P-GEP Supply Chain Index also shows a rising underutilisation of global capacity.