The economy is set to grow 6.4% this fiscal according to the first advance estimates of national income released Tuesday, also dampening growth prospects for fiscal year 26 and raising fresh concerns for policymakers in the midst of of the preparation of the proposals for the Union. Budget 2025-26.

While private consumption is considered to have rebounded strongly and is expected to grow by 7.3% this fiscal, challenges in private investment demand, as well as moderate public spending, are expected to continue during the remaining months of this fiscal year. Experts have also pointed to risks from global uncertainties that also extend into FY26.

According to estimates released by the Ministry of Statistics and Program Implementation, the gross value added (GVA) has grown by 6.4% in the fiscal year 2024-25 compared to the growth rate of 7.2% in the fiscal year 2023-24. Nominal GVA has shown a growth rate of 9.3% in FY 2024-25 compared to the growth rate of 8.5% in FY 2023-24.

“The lower GDP growth for FY25 has been the result of a cyclical slowdown in the Indian economy in the last three quarters. Apart from this, some of the factors affecting growth were a strong base effect, general elections, weak private sector investment and monetary and fiscal tightening,” said Paras Jasrai, senior economic analyst at India Ratings and Research.

While agriculture is seen to have grown by 3.8% this fiscal, mining and quarrying is expected to grow by 2.9% and manufacturing by 5.3% this fiscal. Among the sectors, the fastest growth is estimated in public administration, defense and other sectors at 9.1% this fiscal year, followed by 8.6% in construction and 7.3% expansion in financial, real estate and professional services.

Private consumption picks up, investments remain slow:

However, the increase in private final consumption spending of 7.3% this fiscal from 4% in fiscal year 24 is seen as the good aspect of the data, especially with rural consumption recovering after of the good monsoons.

Dharmakirti Joshi, chief economist at Crisil, said the expected decline in food inflation will support discretionary spending, especially among low-income households with a higher share of food in the consumption basket. However, he noted that the urban economy is struggling with the twin challenges of high inflation and slowing credit growth.

However, private sector investment has remained sluggish despite various measures implemented. Gross fixed capital formation is estimated to grow 6.4% in FY25 from 9% in the last fiscal.

Growth prospects for FY26 are dim, more action needed:

Most analysts expect growth to also remain below 7% in FY26. “We project the Indian economy to expand by 6.7% next fiscal in the baseline scenario, supported by government spending in infrastructure, lower crude oil prices, normal monsoon and monetary easing. That said, policymakers need to remain vigilant against escalating geopolitical and climate risks,” he said Joshi.

Aditi Nayar, ICRA’s chief economist and head of research and outreach, projected GDP growth of 6.5% in FY26, based on the capex boost expected in the upcoming budget. “In our view, GDP growth in fiscal 2026 will be crucially influenced by global uncertainties and domestic uncertainties, amid considerable base effects,” he noted.

He also noted that while MOSPI’s implied projections for the second half of FY2025 look reasonable, some of the sector numbers could report higher growth in the second half of FY2025. For example, Growth rates in the mining, manufacturing and trading, hotels and transportation segments are likely to exceed the assumed rates, given the dissipation of the adverse impact of excess rainfall that affected growth during the second quarter of 2025, the expected pick-up in rural demand, and a favorable base effect in some segments. “Similarly, on the expenditure side, FBCF growth is likely to be higher than the NSO’s implied estimate of 6.4% for the second half of FY2025 amid expectations of a pick-up in government investment and some improvement in private investment activity, which was negatively impacted due to the elections in the first half of FY2025,” he said.

Experts also called for the government to continue with measures to maintain the growth momentum.

DK Srivastava, chief policy advisor at EY India, said the government would do well to continue to emphasize infrastructure expansion as the core of its growth strategy in the face of continued global uncertainties.

Suman Chowdhury, chief economist and executive director of Acuité Ratings & Research, said, however, that a sustained revival in domestic demand will be the key to growth of another 7% in the medium term.