SBI lowers India's FY25 GDP growth forecast to 6.3%, below NSO's 6.4%

Despite projected growth rates of 6 per cent in first half of FY25, with a pickup to 7 per cent in the second half, SBI flags weak private investment as a concern to economic growth

The State Bank of India (SBI) has revised its forecast for India’s GDP growth in the financial year 2024-25 (FY25) to 6.3 per cent, down from the National Statistical Office’s (NSO) projection of 6.4 per cent. The bank attributed the downgrade to multiple economic challenges, including a slowdown in lending and manufacturing, shortly after the Ministry of Statistics and Programme Implementation released its gross domestic product (GDP) projections on Tuesday.

 

SBI’s revision reflects concerns over a slowdown in lending and manufacturing, coupled with the effects of a large base effect from the previous year. The bank highlighted that a general slowdown in aggregate demand is evident in the first advance estimates for GDP, which indicate tempered expectations for FY25.

 

“Historically, the difference between RBI’s estimate and NSO’s estimate is always in the range of 20-30 bps and hence the 6.4 per cent estimate of FY25 is along expected and reasonable lines. We, however, believe that GDP growth for FY25 could be around 6.3 per cent, with downward bias,” the SBI said in its GDP forecast.

 

The first advance estimates, released by the government, for FY25 suggest a GDP growth rate of 6.4 per cent, a sharp decline from 8.2 per cent in FY24. The gross value added (GVA) growth is also pegged at 6.4 per cent. Despite these challenges, per capita nominal GDP is expected to rise significantly, increasing by Rs 35,000 compared to FY23.

 

Why SBI downgraded its GDP projections?

According to the NSO’s data, agriculture and allied activities are projected to grow by 3.8 per cent in FY25, up from 1.4 per cent in FY24, driven by robust policy measures and public infrastructure development.

 

However, industry and services is expected to see a slowdown in growth compared to last year. Industry is expected to grow at 6.2 per cent in FY25, down from 9.5 per cent in FY24, while services is likely to grow by 7.2 per cent, a slight decrease from 7.6 per cent in FY24.

 

The report underlined the significance of government consumption, predicting nominal growth of 8.5 per cent and real growth of 4.1 per cent, which is expected to bolster the economy. However, the manufacturing and services sectors’ underperformance poses a substantial challenge to maintaining higher growth rates.

 

Private consumption driving growth

Private consumption has emerged as a key driver of economic growth, with an anticipated real growth rate of 7.3 per cent in FY25, up from 4 per cent in FY24. This increase is supported by strong agricultural growth and lower food inflation. Despite this positive trend, investment growth has slowed to 6.4 per cent, down from 9 per cent in the previous year, with no significant rebound expected in the second half of the financial year.

 

“Empirical evidence does suggest a slowdown in credit will push a slowdown in GDP,” the SBI mentioned, explaining its growth projections.

 

The NSO’s initial advance GDP projections align with public sector lender’s forecast, predicting a 6.4 per cent real GDP growth for FY25. The first half of the financial year is expected to see a growth rate of 6 per cent, with a pickup to 7 per cent in the second half. Despite these projections, weak private investment remains a concern.