India’s gross domestic product will likely grow by 6.6% in the current financial year, aided by consumption expenditure, exports rebound and capital flows, Deloitte India said on Friday.
It has revised India’s economic growth projection for previous financial year to a range of 7.6 to 7.8%. In January, the firm had projected growth for 2023-24 fiscal in the range of 6.9-7.2%.
“Deloitte also estimates the country’s GDP growth to be around 6.6% in FY 2024-25 and 6.75% in the year after, as markets learn to factor in geopolitical uncertainties in their investment and consumption decisions,” it said in its economic outlook report.
Deloitte’s projection for FY25 is lower than the Reserve Bank of India’s projection of 7%. The International Monetary Fund has projected India’s growth rate at 6.8% for FY25.
With the expectation that the number of middle-to-high-income segments will be one in two households by 2030-31, up from one in four currently, Deloitte believes this trend will likely become further amplified, driving overall private consumer expenditure growth,” it said.
“The global economy is expected to witness a synchronous rebound in 2025 as major election uncertainties get sorted out and the central banks of the West may announce a couple of rate cuts later in 2024. India will likely see improved capital flows and a rebound in exports” said Deloitte India Economist Rumki Majumdar.
Strong growth numbers over the past two years have helped the economy to catch up with the pre-COVID trends. Investment, backed by strong government spending on infrastructure, has helped India maintain a steady recovery momentum, she added.
That said, there are concerns about inflation and geopolitical uncertainties feeding into higher food and fuel prices. At the same time, the prediction of above normal monsoon will likely provide some respite by positively impacting agriculture output and easing pressure on food prices.
Inflation is expected to remain above the Reserve Bank of India’s target level of 4% over the forecast period due to strong economic activity, Majumdar said.
Deloitte said even as growth in consumer spending post-pandemic has been fluctuating, there is a visible shift in consumption patterns, with demand for luxury and high-end products and services growing faster than demand for basic goods.
“India is seeing a prominent shift in consumer behaviour toward aspirational spending, which is inevitable in any nation that experiences growing economic prosperity. India’s spending share in the luxury and premium goods and services category (such as spending on transport, communication, recreation, etc.) has traditionally been lower than nations such as the United States, China, Japan, and Germany. So, there is, therefore, potential for this ratio to increase further as consumer income grows.” Majumdar said.
The report further said that to sustainably boost household spending amidst wealth concentration, declining savings, and rising debt levels, several corrective measures can be implemented. Increasing employment opportunities in rural and semi-urban areas could elevate savings, particularly as employment transitions from agriculture, which represents 44% of employment but only about 18% of GDP, to sectors like manufacturing, services, and construction.
Despite the necessity for credit growth to stimulate economic activity, the RBI will have to monitor rising household debt and encourage banks to leverage data analytics for smarter lending decisions, Deloitte said.
