India Real GDP - How Did We Get It So Wrong In FY24?

Motilal Oswal Report

In this note, we discuss – with the benefit of hindsight – the possible factors explaining better-than-expected real GDP growth in FY24. In our view, four factors explain a large part of this outperformance:

1. lower deflator pushing real growth higher, even when nominal growth moderated;

2. no fiscal drag as fiscal spending, led by capex, grew decently in FY24, amid deficit consolidation;

3. strong growth in credit, pushing the credit-to-GDP growth ratio to a 17-year high; and

4. a 47-year low household net financial savings in FY23, leading to an unfavorable base for household spending in FY24, which was exaggerated by a likely pick-up in household net financial savings.

As we enter FY25, one of these factors will reverse (deflator), some will moderate (fiscal spending and credit growth) and the last one (household spending growth) will improve.

Accordingly, it explains the unanimous projection of a moderation in real GDP growth to 6.5-7.2% in FY25 from 8.2% in FY24. In any case, India’s economic growth in the postpandemic period (FY21-FY24), especially considering a modest fiscal and monetary stimulus, has not been particularly weak compared to other major economies, and it is unlikely to change in FY25.

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