Finance Ministry Considers 6% GDP Growth as ‘Decent’ Amid Global Slowdown

India’s Economic Growth Outlook for FY25 and Challenges Ahead

The Indian economy is projected to grow at 6.4% in FY25, marking the lowest growth rate in four years compared to 8.2% in FY24. However, the Finance Ministry views a 6% growth rate as “decent” in years when economic activity slows down, emphasizing that sustained 8-9% growth is episodic and difficult to maintain.

Global Growth Trends and India’s Economic Position

A senior government official highlighted that a decadal study of major economies—including the US, UK, Japan, and China—revealed that:

• The US has maintained a steady 3% growth rate over the last decade.
• The UK reported an average growth of 2.7%.
• China and Japan occasionally saw 8-9% growth rates, but these were sporadic, not consistent.

With this context, the official stated:

“A 6% growth rate is the minimum threshold we should aim for. If we drop below that, we need to be concerned.”

Factors Influencing India’s Growth Prospects

While FY25 GDP growth is expected at 6.4%, the Finance Ministry remains optimistic, citing several factors that could push growth beyond this level:

1. Income Tax Cuts to Boost Consumption

   • Finance Minister Nirmala Sitharaman’s Budget 2025-26 introduced an income tax exemption for individuals earning up to ₹12 lakh per year.
   • This is expected to increase disposable income, thereby driving consumption-led growth.

2. Private Sector Investment & Public Expenditure

   • Private sector capital expenditure (capex) is anticipated to pick up.
   • Sustained public sector investment will act as a growth catalyst.

3. H2 FY25 Growth Expected to be Higher

   • Q2 FY24 growth fell to 5.4%, a seven-quarter low, due to contraction in mining and weakness in manufacturing and utility services.
   • However, the government expects a strong rebound in H2 FY25, supporting overall economic momentum.

Global Trade Tensions and India’s Economic Risks

Despite domestic optimism, global uncertainties pose challenges to India’s growth trajectory:

• Moody’s Analytics predicts that India’s GDP growth may taper to 6.4% in 2025 from 6.6% in 2024, citing:
  • Softening global demand.
  • Rising trade tensions in the Asia-Pacific region.
• US Trade Policies Could Impact India
  • US President Donald Trump has imposed or proposed new tariffs on key trading partners, including Canada, Mexico, China, and India.
  • Key tariff actions:
    • 25% tariff on Canada and Mexico (later put on hold).
    • 10% tariff on Chinese imports.
    • Higher duties on steel and aluminum.
    • Potential reciprocal tariffs on India and China.

If the US imposes tariffs on Indian exports, sectors like IT services, pharmaceuticals, and textiles could face trade disruptions, potentially slowing down growth.

Final Outlook: Aiming for Consistency Over Episodic Growth

The Indian government is focused on maintaining a stable and sustainable GDP growth rate above 6%, despite:

• Global economic uncertainties.
• Slowdown in private sector investment.
• Trade-related risks.

While 8-9% growth remains aspirational, policymakers believe consistent 6%+ growth is a strong indicator of economic resilience. However, much will depend on domestic policy measures, global trade conditions, and the ability of the Indian economy to withstand external shocks.