What the recent GDP data revisions reveal Premium

In India, investment-led growth as a long-term strategy holds good

National accounts data released on February 28, 2025 by the National Statistical Office (NSO) provide two sets of information pertaining to, first, revised annual Gross Domestic Product (GDP)/Gross Value Added (GVA) estimates for 2022-23, 2023-24 and 2024-25 and, second, Q3 2024-25 GDP/GVA estimates accompanied by the second advance estimates for 2024-25.

The third quarter growth of 6.2% is a clear improvement over the second quarter growth of 5.6%. In terms of sectoral performance, agriculture has shown a robust growth of 5.6% in this quarter. Manufacturing, however, continues to languish with a growth of 3.5%, although there is a marginal improvement from the previous quarter when its growth was only 2.1%. In the services sector, the trade sector, hospitality/hotels, et al. have also shown an improved growth of 6.7% as compared to 6.1% in Q2.

Looking at the four quarterly real GDP growth rates of 2024-25 at 6.5%, 5.6%, 6.2%, and 7.6%, respectively, two questions are of interest. First, what led to a sharp fall in the second quarter growth to 5.6%? Second, is the implied fourth quarter growth of 7.6% feasible? To examine this, we look at the contribution to growth of different expenditure segments as measured by the share of the segment concerned multiplied by its growth in the relevant quarter.

The contribution of private final consumption expenditure (PFCE) to overall GDP growth in the four quarters of 2024-25 is estimated at 4.3, 3.3, 4.1 and 5.3 percentage points, respectively. The fall in real GDP growth in the second quarter, from 6.5% to 5.6%, is explained by the fall in the contribution of PFCE growth from 4.3 to 3.3 percentage points. Further, the required growth in PFCE is estimated at 9.9% for the implied fourth quarter GDP growth of 7.6%. This seems difficult as such a high growth in PFCE has not been experienced in the recent past. The contribution of investment to growth can also be similarly measured. This is estimated at 2.3, 2.0, 1.8 and 2.1 percentage points for the four quarters of 2024-25, respectively. Thus, the relatively lower GDP growth of 6.2% in the third quarter is partly attributable to the fall in contribution of investment to GDP growth at 1.8 percentage points.

However, the required contribution of 2.1 percentage points in the fourth quarter would depend largely on government investment growth. As per the Controller General of Accounts (CGA) data, the Government of India has incurred ₹7.57 lakh crore of capital expenditure up to January 2025. To reach the revised estimate level of ₹10.18 lakh crore, an additional ₹2.61 lakh crore needs to be spent in the remaining two months of the financial year. Average expenditure in February and March in the period 2021-22 to 2023-24 has only been ₹1.81 lakh crore. If the Government of India’s investment expenditure falls short of the revised estimates — which were themselves significantly lower than the Budget estimates of ₹11.1 lakh crore — then the implied fourth quarter GDP growth of 7.6% may not be realised. Accordingly, the full year growth of 6.5% as per the second advance estimates may have to be revised downwards.

According to the revised annual numbers, the real as well as nominal growth rates have been revised upwards. Real GDP growth rates for 2022-23 to 2024-25, are now estimated at 7.6, 9.2 and 6.5%, respectively. In 2023-24, the revision in GDP growth was from 8.2% to 9.2%, and correspondingly in GVA growth from 7.2% to 8.6%.

Sectorally, the maximum upward revision in growth happened in manufacturing and in financial, real estate, et al. services by margins of 2.4 and 1.9 percentage points, respectively. Further, comparing 2024-25 growth with that of 2023-24, real GDP growth shows a sharp fall of 2.7 percentage points. This fall is largely explained by the lower growth in gross capital formation, which fell from 10.5% in 2023-24 to 5.8% in 2024-25.