India's Real GDP Growth Estimated At 7% For Fiscal 2025: RBI Annual Report

India's real gross domestic product, or GDP, growth for fiscal 2025 is projected at 7% with risks evenly balanced, according to the Reserve Bank of India. This would mark the fourth successive year of 7% or above growth.

The Indian economy expanded at a robust pace in fiscal 2024, with real GDP growth accelerating to 7.6% from 7% in the previous year, the central bank said in its annual report published on Thursday.

The outlook for the Indian economy remains bright, underpinned by a sustained strengthening of macroeconomic fundamentals, robust financial and corporate sectors, and a resilient external sector.

Consumer price index-based, or retail, inflation for fiscal 2025 is projected at 4.5%, with risks evenly balanced.

The central bank also affirmed that it will remain nimble and flexible in its liquidity management through main and finetuning operations—both repo and reverse repo. It will deploy an appropriate mix of instruments to modulate frictional as well as durable liquidity, to ensure that money market interest rates evolve in an orderly manner, so that financial stability is preserved.

• The government’s continued thrust on capex while pursuing fiscal consolidation, and consumer and business optimism augur well for investment and consumption demand.

• Prospects for agriculture and rural activity appear favourable due to the ebbing El Nino and expected above normal southwest monsoon. The extension of Pradhan Mantri Garib Kalyan Anna Yojana scheme for a period of five more years with effect from Jan. 1, 2024 will strengthen national food security.

• Traction in construction activity is likely to be sustained, supported by both residential and non-residential real estate demand.

• Investments under the production-linked incentive scheme are likely to gain further momentum going forward. These factors are expected to create new employment opportunities, improve labour incomes and strengthen domestic demand.

• Easing of supply chain pressures, broad-based softening in core inflation and early indications of an above normal southwest monsoon augur well for the inflation outlook in fiscal 2025. The increasing incidence of climate shocks, however, imparts considerable uncertainty to the food inflation and overall inflation outlook.

• The Union government’s impetus to growth-inducing capital spending is likely to be sustained in 2024-25, with more than half of borrowings directed towards financing of capital outlay.

• Current account deficit, or CAD, is expected to remain manageable during the fiscal, given the resilient services trade balance and large inward remittance receipts on one hand, and stable capital flows, on the other.

• On the financing side, favourable outlook for domestic economic growth, easing of domestic inflation, and business-friendly policy reforms would be enabling factors in attracting foreign investment, both direct and portfolio. The inclusion of India’s sovereign bonds in major global bond indices ahead is also expected to support FPI flows.

• Opportunities in bilateral and multilateral trade agreements to facilitate greater participation in global value chains, expanding reach to newer markets, and leveraging international trade in the Indian Rupee, would boost exports and foreign direct investment, or FDI, inflows, and strengthen the external sector’s resilience.