Economy to Grow at 8% in FY25, Green Shoots Visible in Rural Consumption

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New Delhi: The Confederation of Indian Industry (CII) anticipates robust economic growth for India, forecasting an 8% increase in GDP for FY25. This marks the fourth consecutive year of growth above 7%, as highlighted by Sanjiv Puri, the newly elected president of CII and chairman and managing director of ITC Ltd.

The CII’s projection surpasses the Reserve Bank of India’s (RBI) forecast of 7.2% growth for the current fiscal year. In a media briefing, Puri emphasized the visible green shoots in rural consumption, backed by an optimistic outlook for the farm sector. On June 7, RBI Governor Shaktikanta Das also shared expectations of improved farm sector activity and rural consumption, driven by an above-normal monsoon forecast and better kharif production.

“The growth estimate hinges critically on addressing the unfinished reform agenda on priority, in addition to improvement in world trade prospects aiding our exports, twin engines of investment and consumption doing well, and expectations of a normal monsoon, among other factors,” Puri stated.

Sectoral Growth Projections

CII forecasts the farm sector output to grow at 3.7% in FY25, a significant rise from 1.4% in FY24, partially due to the base effect. The industry is expected to grow at 8.4%, slightly lower than the previous year’s 9.3%, while the services sector is projected to grow at 9%, up from 7.9% in the previous fiscal year. Puri assured that despite fluctuations from the previous year’s figures, the forecasts for both industry and services remain robust.

“The stellar growth performance expected during the current fiscal is propelled by six growth drivers which have pivoted the economy to an accelerator mode,” CII’s statement quoted Puri.

Key Growth Drivers

The growth drivers include:

  1. Private Sector Investment: Increased participation in the India growth story.
  2. Public Investment: Continued investment in physical and digital infrastructure.
  3. Well-Capitalised Banking System: Strengthening financial stability.
  4. Booming Capital Market: Enhanced investor confidence.
  5. Reduced Dependence on Oil: Diversifying energy sources.
  6. Infrastructure-linked Sectors: Growth in cement, steel, electronics production, food processing, telecom, logistics, renewable energy, automobiles, and semiconductors.

Business Confidence and Investment

CII’s January-March 2024 business confidence survey revealed that three-fourths of the over 200 respondents anticipate an improvement in private capital expenditure in the first half of the current fiscal compared to the same period a year ago. Gross fixed capital formation by the private sector stood at 23.8% of nominal GDP in FY23, surpassing pre-pandemic levels.

Challenges Ahead

Despite the optimistic outlook, CII acknowledged several headwinds to growth, including continued global uncertainty, ‘higher-for-longer’ interest rates globally, heatwaves, extreme weather events, and elevated global commodity prices.

Recommendations

To further bolster growth, Puri suggested continuing tax reforms to boost the investment climate and overall competitiveness of the economy. He proposed that the government consider a roadmap for simplifying capital gains tax and tax deducted at source provisions.

As India gears up for another year of robust growth, the focus remains on sustaining and accelerating this momentum through strategic investments and reforms.

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