India’s GDP Growth to Stabilize at 6.5-7%: CRISIL Report

Technical disruptions normalize, economic drivers remain robust with strong consumption and investment trends

New Delhi, December 17: India’s GDP growth is expected to stabilize at 6.5-7% in the coming years as technical disruptions causing recent fluctuations begin to normalize, according to a report by CRISIL.

The post-pandemic recovery initially led to sharp rebounds and irregular GDP growth patterns. However, these fluctuations are settling, marking a return to long-term stability.

CRISIL highlights that while the pandemic caused uneven recovery across economic segments, the government’s infrastructure spending created multiplier effects, supporting economic resilience. Additionally, strong corporate and bank balance sheets, along with favorable external markets, have further strengthened the economy.

Technical Factors Normalizing

Recent GDP volatility was partly due to technical factors, such as surging government subsidies during the pandemic and swings in commodity prices, which impacted the GDP deflator. Last fiscal year, these factors caused GDP growth to surge to 8.2%, diverging from gross value added (GVA) growth.

In the current fiscal year, these anomalies have normalized. Net product tax growth slowed significantly due to a high base effect, growing at just 3.3% in the first half compared to 10.5% last year. This drop reduced its contribution to GDP growth from 77 basis points (bps) to 25 bps.

The GDP deflator, which adjusts GDP for inflation, is also stabilizing. It grew to 2.7% in the first half of FY24, compared to a low of 0.8% last year, driven by rising WPI inflation, which averaged 2.7%. This stabilization reduces distortions between nominal and real GDP figures.

Key Drivers of Growth

Despite moderation in GDP growth, the economy’s key drivers remain strong:

• Private consumption, which makes up 56.3% of GDP, grew 6.7% in the first half of FY24, up from 4.1% last year.
• Fixed investment, though slower at 6.5% compared to 10.1% last year, remains robust, holding a larger share of GDP than in the pre-pandemic decade.

While high interest rates and fiscal consolidation have contributed to slower growth, improving rural recovery and a healthy monsoon are expected to bolster demand further.

Outlook for FY24

CRISIL projects GDP growth for FY24 to align with pre-pandemic trends at 6.5-7%, compared to 8.2% last fiscal. However, the growth is expected to be more balanced across sectors, reflecting a healthier economic trajectory for the future.