India's GDP is likely to grow at 6.5% in FY25, India Ratings and Research (Ind-Ra) says in its latest macroeconomic outlook for the country. For FY24, the agency estimates India's GDP will grow 7.3%.

The growth estimates are based on expectations of a normal monsoon season, sustained government capital expenditure, healthy corporate performance, softness in global commodity prices, and prospect of a new private corporate capex cycle, Devendra Kumar Pant, chief economist, Ind-Ra says.

Private final consumption expenditure (PFCE), which accounts for about 60% of the GDP from the demand side, is expected to grow 6.1% year-on-year in FY25 (FY24: 4.4%). However, Ind-Ra states the consumption demand may not be sustainable as it is skewed in favour of the goods and services consumed largely by the households belonging to the upper income bracket.

The Gross Fixed Capital Formation (GFCF), the second-largest component of GDP from the demand side, is expected to grow 8.1% year on year (y-o-y) in FY25 (FY24: 10.3%), due to the sustained government capex. Ind-Ra also states that there are green shoots indicating revival of private sector's greenfield capex also.

The growth in the Government Final Consumption Expenditure (GFCF) is estimated to grow at 4.2% y-o-y in FY25 (FY23: 4.1%). "GFCE had provided the much-needed support to the economy during FY16-FY20 as its y-o-y growth averaged 7.2%. However, due to the shift in government's expenditure focus towards capex, its average y-o-y growth has fallen to 3.6% during FY22-FY24 and this trend is likely to continue in view of the fiscal consolidation path spelt out in the FY25 union budget. This is reflected in the centre's revenue expenditure to GDP ratio, which had stepped up to 15.55% in FY21 to mitigate the adverse impact of COVID-19, gradually coming down (FY22: 13.64%; FY23: 12.69%) and it is budgeted at 11.15% for FY25," the agency points out.

Ind-Ra expects exports to face global headwinds in FY25 due to the growth slowdown in advanced economies and rising trade distortions and geopolitical fragmentation. It expects goods and services exports to grow 5.8% y-o-y and imports to grow 8.8% y-o-y in FY25 as against 1.4% and 13.2%, respectively, in FY24.

The agency also said the government's FY25 Fiscal Deficit target, though challenging, is achievable due to growth in tax collections. 

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