Deloitte pegs India’s FY25 GDP growth at 6.6%, bets on rising middle class. Key details

India’s gross domestic product (GDP) is expected to grow at 6.6% in fiscal year 2024-25 (FY25), as per the forecast shared by Deloitte India, the local arm of the global accounting major. The projection is backed by the growth in the middle income class, which in turn will boost private expenditure.

The growth in the current fiscal would also accelerate due to rise in consumption expenditure, exports rebound and capital flows, it said.

In its India's economic outlook report released on April 26, Deloitte said the rapid growth of the middle-income class has led to rising purchasing power and even created demand for premium luxury products and services.

The trend will gain momentum in subsequent years, with the number of middle-to-high-income segments rising to one in two households by 2030/31, up from one in four currently, it added.

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According to Deloitte, the Indian economy is likely to have logged a growth in the range of 7.6%-7.8% in the fourth quarter (January-March period) of 2024, which is higher as compared to its previous forecast of 6.9%-7.2%.

While the FY25 GDP growth forecast is seen at 6.6%, the rate is likely to increase to 6.75% in FY26, Deloitte said in its economic outlook.

Global economy to see ‘synchronous rebound’

"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.

Other growth projections

Deloitte's FY25 GDP growth estimate is similar to the projections made by the World Bank. It is, however, lower than the projections by the RBI and other agencies. The RBI has projected the Indian economy growth at 7 per cent in the current fiscal.

While the Asian Development Bank (ADB) and Fitch Ratings have estimated growth at 7 per cent, the International Monetary Fund (IMF), S&P Global Ratings and Morgan Stanley projected a 6.8% growth rate for FY25.

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.

‘Shift in consumer behaviour’

"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.

Government investments in infrastructure and initiatives such as Future Skills Prime 2021 for skill enhancement and Ayushman Bharat for health improvements are expected to enhance employability and productivity. 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.

With PTI inputs