Economic Outline

Economic Indicators

Despite global challenges, India remains the world’s fastest-growing major economy and the fifth-largest in absolute terms, expanding at 8.2% in FY23/24. Growth was driven by public investment in infrastructure and increased household investments in real estate. The manufacturing sector grew by 9.9%, while resilient services offset agriculture's underperformance. Government initiatives have aimed to strengthen manufacturing by improving the business environment, logistics infrastructure, tax efficiency, and simplifying tax rates. The latest government forecast predicts 6.4% economic growth for 2024/25, the slowest in four years, following a weaker-than-expected 5.4% growth in July-September, India’s slowest pace in seven quarters. The full-year projection expects growth to pick up in the second half, reaching 6.7%.

Concerning public finances, the Indian government aims for a narrower fiscal deficit of 4.4% of GDP for the fiscal year 2025-26, down from a revised 4.8% for the current year. To fund the deficit, gross borrowing from the market will increase to 14.82 trillion rupees ($171.26 billion), compared to 14.01 trillion rupees this year. Despite a personal tax revision expected to result in a 1 trillion rupee revenue loss, the net market borrowing will slightly decrease to 11.54 trillion rupees from 11.63 trillion rupees in 2024-25. The government also plans to transition to using debt-to-GDP as the key fiscal benchmark starting in 2026-27, with a goal of reducing debt to 50% by March 31, 2031, from the current 57.1%. Inflation has remained above the Reserve Bank of India’s comfort zone in recent months (at 5.2% year-on-year in December 2024), leading the central bank to keep policy rates unchanged for the eleventh consecutive bimonthly review in December, despite modest GDP growth in the first half of the fiscal year. Core inflation, which is below the bank's target, has also been rising, a trend that could drive up inflationary expectations and reduce consumer spending.

India overtook China’s mainland as the world’s most populous country. It also has the world’s largest youth population; nevertheless, according to the OECD, over 30% of India's youth are NEETs (not in employment, education or training). India continues to suffer from a low GDP per capita (USD 11,938 in 2024, PPP), and almost 25% of the population still lives below the poverty line. The country has made significant progress in reducing extreme poverty, halving the proportion of people living below USD 2.15 per day (2017 PPP) between 2011 and 2019 (World Bank, 2023 data). However, the pace of poverty reduction slowed in recent years, particularly during the COVID-19 pandemic, and inequalities are very strong: the richest 1% of the population own around 40% of the national wealth, while the richest 10% control about 80% of the wealth. According to the CMIE, the unemployment rate stood at 8.1% for both 2023-24 and the first 8 months of FY 2024-25.

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