Jefferies stresses that the responsibility now falls on the private sector to lead the next phase of India’s investment cycle. Mahesh Nandurkar, head of India research at Jefferies, noted that the groundwork for a broad-based investment recovery has already been laid during Prime Minister Narendra Modi’s second term. The government has been a key player in expanding infrastructure, and now it’s time for the private sector to step up and drive capital spending.

In addition to the private sector’s role, recent tax relief measures in the government’s budget are expected to provide a significant boost to domestic consumption. The income tax exemption threshold has been raised from Rs 7 lakh to Rs 12 lakh per annum, with tax rates for individuals earning above Rs 12 lakh also reduced. These changes are expected to positively impact around 35 million taxpayers, providing an average financial relief of Rs 30,000 per individual. This increase in disposable income is anticipated to support greater domestic consumption.

Jefferies also pointed to the government’s fiscal consolidation plan, which aims to reduce India’s debt-to-GDP ratio from 57% to 51% by FY31. The fiscal deficit target of 4.4% in FY26 is expected to decline further, reaching around 3.5-3.6% by FY31. These efforts are aligned with India’s broader goal of maintaining macroeconomic stability while fostering sustainable growth.

While the slowdown in public investment has raised concerns, Jefferies emphasizes that the future of India’s economic growth now depends on the private sector’s ability to take the reins and drive capital expenditure, ensuring the economy continues to progress on a positive trajectory.

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The bank’s report noted, “GDP growth for FY25 could be around 6.3 per cent, with downward bias,” underscoring the headwinds faced by the economy. Key factors such as a slowdown in manufacturing and credit growth, coupled with the lingering effects of a high base, have tempered growth expectations for the fiscal year.

According to the First Advance Estimates (FAE) for GDP, a broader deceleration in aggregate demand is evident, reflecting the pressures weighing on economic activity.

Sector-Wise Contributions to GDP

SBI’s analysis highlighted sectoral contributions to GDP growth. Government consumption is expected to grow at a nominal rate of 8.5% and a real rate of 4.1%, offering some cushion to the economy amid otherwise subdued trends.

However, the industrial sector paints a less optimistic picture. All sub-segments of the industry are anticipated to decelerate in FY25, with the sector’s growth projected at 6.2%, a sharp drop from the 9.5% recorded in FY24. The report specifically pointed out that both manufacturing and mining are expected to slow down significantly compared to the previous fiscal year.

Despite the overall slowdown in industrial growth, the agriculture sector offers a glimmer of hope. Agricultural output is forecast to grow by 3.8% in FY25, marking a significant recovery from the modest growth of 1.4% in FY24. This uptick is expected to contribute positively to the overall economic outlook.

Per Capita and Nominal GDP Trends

The report also noted a rise in per capita nominal GDP, with the NSO projecting an increase of approximately ₹35,000 compared to FY23 levels. However, nominal GDP growth is expected to remain nearly stagnant, with an estimated growth of 9.7% in FY25, only slightly higher than the 9.6% growth recorded in FY24.

Challenges and the Road Ahead

SBI’s revised GDP growth forecast reflects the complexities India faces in maintaining robust economic momentum amidst global uncertainties and domestic pressures. The report highlighted the need for targeted interventions to boost manufacturing and credit growth, which are critical for sustainable economic performance.

The First Advance Estimates, offering an early insight into GDP trends, suggest that FY25 will likely be a year of moderated growth. Policymakers are expected to strike a balance between fostering growth in key sectors and mitigating headwinds to sustain economic momentum.

As the year unfolds, maintaining economic stability will require a strategic approach to address sector-specific challenges while leveraging areas of strength, such as agriculture and government expenditure, to drive growth forward.

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Chandrajit Banerjee, Director General of CII, emphasized that while India’s growth story has been largely driven by domestic consumption, inflationary pressures have impacted the purchasing power of consumers, especially in rural areas. In response, CII has urged the government to adopt strategic measures to enhance disposable incomes and stimulate consumer spending.

One of the key suggestions from CII is the reduction of excise duties on fuel. The industry body pointed out that the central excise duty, which constitutes a significant portion of retail fuel prices, has remained largely unchanged since May 2022, despite a nearly 40% drop in global crude oil prices. CII believes that lowering excise duties on fuel would not only ease inflation but also put more money in consumers’ pockets, particularly in low-income households where fuel costs represent a substantial part of the budget.

In addition to the fuel excise reduction, CII has called for an increase in the daily minimum wage under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), from Rs 267 to Rs 375, based on recommendations from the 2017 Expert Committee on Fixing the National Minimum Wage. This adjustment would require an estimated additional expenditure of Rs 42,000 crore, but CII argues that it is a necessary step to boost rural incomes and, by extension, rural consumption.

To further support rural consumption, the CII also proposes raising the annual payout under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme from Rs 6,000 to Rs 8,000. The additional funds, CII believes, would help alleviate the financial strain on rural families and fuel consumer spending in these areas.

CII has also recommended a series of measures to address the tax burden on individuals and corporations. The body has suggested reducing the highest marginal tax rate of 42.74% for individuals and aligning it more closely with the corporate tax rate of 25.17%. This move, CII contends, would encourage consumer spending and stimulate economic activity.

In a bid to drive demand in the economy, CII has proposed the introduction of “consumption vouchers” targeted at low-income groups. These vouchers, which would be redeemable for specific goods and services, would be valid for a set period, encouraging spending during a critical time. The vouchers would be designed for Jan-Dhan account holders who do not benefit from other welfare schemes, ensuring that the most vulnerable groups are reached.

Additionally, CII has recommended revising the unit costs under key housing schemes like the Pradhan Mantri Awas Yojana (PMAY), which have not been updated since the schemes’ inception. An increase in the funding for these programs would ensure the continuation of affordable housing construction, an essential need for rural and urban low-income families.

Lastly, in a move to encourage savings, CII has suggested revising tax policies on bank deposits. It proposed reducing the lock-in period for fixed deposits with preferential tax treatment from five years to three years and taxing interest income at a lower rate. This could stimulate the growth of bank deposits, which have been declining as a share of household financial assets.

In summary, the Confederation of Indian Industry’s budget proposals focus on enhancing the purchasing power of consumers, particularly in low-income rural households, while also encouraging savings and investment. These measures, CII argues, are crucial for sustaining India’s economic momentum and ensuring that growth reaches all segments of society.

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While there has been no official announcement regarding his continuation, an extension would make Das the longest-serving RBI Governor since Benegal Rama Rau, who held the position for 7.5 years from 1949 to 1957.

Shaktikanta Das, the 25th Governor of the RBI, assumed office on December 12, 2018, and has played a pivotal role in steering India’s monetary policy during critical periods. His tenure has seen significant challenges, including the economic fallout of the COVID-19 pandemic and global geopolitical disruptions. His term was previously extended in 2021, reflecting his importance to the financial sector.

Before his appointment as RBI Governor, Das served as Secretary in the Departments of Revenue and Economic Affairs under the Ministry of Finance. He also served as India’s G20 Sherpa and was a Member of the 15th Finance Commission. With over four decades of experience, he has held prominent roles in central and state governments, focusing on finance, taxation, industries, and infrastructure.

Das is also credited with playing a significant role in the preparation of eight Union Budgets during his tenure in the Finance Ministry, underlining his deep expertise in fiscal and economic policymaking. An alumnus of St. Stephen’s College, Delhi University, Das is known for his pragmatic approach and decisive leadership.

As December 10 approaches, speculation about the RBI’s leadership remains high. The decision to extend Das’ term or appoint a new Governor will have significant implications for the country’s monetary policy and economic direction.

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Crisil’s report attributes the slowdown to high interest rates and reduced fiscal support. “Risks are tilted toward the downside given the lacklustre second quarter growth number,” the report noted.

The Indian economy grew by 5.4% in real terms during the July-September quarter, as per data from the Ministry of Statistics and Programme Implementation. This figure fell short of the Reserve Bank of India’s (RBI) 7% forecast and marked a stark decline compared to the 8.1% growth in the same period last year.

In the April-June quarter of FY 2024-25, GDP growth was 6.7%, also below the RBI’s projection of 7.1%.

Signs of Revival in Third Quarter
Despite the subdued quarterly figures, high-frequency indicators from October, such as automobile sales and export growth, suggest potential recovery in the third quarter. Crisil believes the slowdown in the second quarter may be temporary.

Agricultural Growth: A Silver Lining
The agricultural sector showed resilience, with growth expected to strengthen further. A healthy kharif harvest, supported by monsoon rainfall 8% above the Long Period Average and higher reservoir levels, is anticipated to boost rural incomes and consumption.

“Increased kharif crop arrivals into the market are likely to ease the pressure on food inflation, which has remained elevated for months, eroding the purchasing power of households,” Crisil added.

Inflation Challenges
India’s retail inflation stood at 6.21% in October, exceeding the RBI’s upper tolerance limit of 6%. Elevated food prices, particularly for vegetables, fruits, and oils, were the main contributors. Policymakers aim to bring inflation down to 4% sustainably, but high food prices remain a challenge.

The RBI has maintained the repo rate at 6.5% to manage inflationary pressures. Crisil expects easing inflation and festive season demand to support consumption growth in the second half of the fiscal year.

While signs of recovery are visible, sustaining growth amid global and domestic challenges will remain a key focus for policymakers and stakeholders.

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