Investment rate in India is expected to have decreased to 30.1% in FY25
India’s investment rate is projected to have declined to a three-year low of 30.1 percent of GDP in 2024-25, down from 30.8 percent in the previous fiscal year. This decrease was primarily due to a slowdown in the government’s capital expenditure throughout the year. The nominal investment rate was even lower than the pre-pandemic average of 30.2 percent, contributing to the overall decline in growth to a four-year low.
According to experts, the first advanced estimates indicate that India’s economy grew at a rate of 6.4 percent, a significant drop from the 8.2 percent growth seen in the previous year. The decline in government capital expenditure, which plays a crucial role Ain post-pandemic recovery, is not expected to be offset in the remaining part of the fiscal year. Additionally, private sector investment remains sluggish despite favorable conditions, leading to a slowdown in investment growth to 6.4 percent from 9.0 percent in the previous year.
Chief economist Dharmakirti Joshi from Crisil stated that the 6.4 percent growth estimate is lower than the RBI’s projection of 6.6 percent and slightly below the lower threshold of the government’s 6.5-7 percent projection. However, investment was not the sole factor contributing to the slowing growth, as the manufacturing sector is also anticipated to underperform.
Manufacturing’s contribution to the GDP has remained below 16 percent for the past three years. Analysis shows that manufacturing growth in FY25 is estimated at 5.3 percent, lower than the 13-year average of 5.8 percent and the pre-pandemic average of 6.2 percent. On the other hand, the agricultural sector is expected to grow at 3.8 percent in FY25, a significant increase from 1.4 percent in the previous year and above the long-term average of 3.7 percent.
Similarly, consumption growth is projected to have increased to 7.3 percent from a meager 4 percent in the previous year.
Consumption growth has maintained an average of 6 percent since the beginning of the series and 6.7 percent prior to the pandemic.
Suman Chowdhury, Chief Economist and Executive Director at Acuité Ratings & Research, stated, “Private Final Consumption Expenditure has shown a significant improvement, growing by 7.3% in FY 2024-25, compared to 4.0% in the previous year. This growth is primarily attributed to increased rural demand, as urban demand has been weaker due to higher interest rates and a slowdown in retail loans.”
Furthermore, services are anticipated to remain stable as the tertiary sector’s contribution to the economy surpasses 50 percent once again. The sector is expected to grow by 7.2 percent, only slightly lower than the previous year’s growth rate of 7.6 percent.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.