DK Joshi, Chief Economist at CRISIL, has shared an optimistic outlook for India’s GDP growth, despite facing global uncertainties and challenges. Joshi remains confident that the country’s GDP growth has likely bottomed out, and he anticipates a recovery moving forward, with projections pointing toward a 6.5% growth rate for the fiscal year 2025-26.
Revising GDP Growth Projections
India's GDP growth has indicated stabilization after recent volatility. Joshi pointed out that although the GDP for the fiscal year 2024-25 initially came in marginally below estimates, recent revisions upwards indicate a more positive picture. The final quarter of this fiscal year is likely to see a major rebound, with a growth rate of 7.6% predicted, a welcome increase that indicates the economy's resilience in the face of continuing challenges.
Joshi believes that the economy has "bottomed out" and is poised for recovery, supported by a combination of factors, including improved monetary policy and fiscal impulses aimed at supporting consumption.
Key Growth Drivers
Joshi referred to a number of growth drivers that will underpin the improving trend of the economy in the months ahead. The most significant among these is the presumption of normal monsoons, which will have a major bearing on farm growth. With food inflation moderating, households' discretionary spending ability will increase, further augmenting domestic consumption.
“Food inflation is coming down, and that improves the discretionary spending power of the households,” Joshi said. This, coupled with a supportive monetary policy and fiscal impulses, is expected to keep the GDP growth rate around 6.5% for the 2025-26 fiscal year.
Sectoral Performance: Agriculture and Services Lead
Sector-wise, agricultural growth has been one of the bright spots, exceeding expectations. The sector has seen robust performance, driven by favorable weather conditions and government support. However, the manufacturing sector has underperformed in comparison to other segments in recent years.
"Manufacturing industry hasn't performed as well as some other sectors after the pandemic," Joshi said. Part of the reason for that is the world economic environment, where policies in larger economies are capping the external stimulus that would otherwise fuel manufacturing growth. Still, Joshi hopes to see a manufacturing turnaround in the next fiscal year on the back of a change in policy emphasis and structural support for industry.
While manufacturing has faced challenges, the services sector continues to outperform. February’s PMI data showed services growth well above manufacturing, reflecting a broader trend where services remain the leading engine of growth in the Indian economy. Despite this, Joshi believes that the manufacturing sector will gradually pick up, though services will continue to dominate in the short term.
The Impact of Global Uncertainty
Global uncertainties remain a significant factor influencing India's growth prospects. Geopolitical tensions, trade disruptions, and global inflationary pressures have created an unpredictable external environment. Joshi mentioned that the global focus on domestic production has dampened India's export performance in the goods sector, although the manufacturing sector’s exports remain strong.
“We are seeing services do better than manufacturing, although India is a domestically driven economy,” he said, pointing out the paradox of India's export performance. While services continue to thrive globally, manufacturing has not benefited as much from international demand.
Despite the global challenges, Joshi remains confident that India’s manufacturing sector will recover, supported by domestic policies focused on boosting production.
Government and Private Spending to Support Growth
Government expenditure, which had decelerated previously in the fiscal year because of elections and the budget cycle, is likely to accelerate in the last quarter. Joshi said that government and private sector expenditure are both expected to rise, further driving GDP growth in the fourth quarter of the fiscal year.
“Government spending should go up in the last quarter, which is currently playing out. Private spending will also show a bump-up, supporting growth,” Joshi said, underscoring the importance of both sectors in maintaining momentum for India’s economy.
Conclusion
In summary, DK Joshi's outlook for India’s economic growth remains positive, with a focus on the recovery of manufacturing and the continued strength of the services sector. While global uncertainties pose challenges, India’s domestically driven economy, favorable agricultural conditions, and improved consumer spending power offer a solid foundation for continued growth. With government and private spending expected to increase in the coming months, India is well-positioned to maintain its economic momentum, with GDP growth projected to stabilize at around 6.5% for the fiscal year 2025-26.
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