Key Highlights
- Nomura trims its FY25 GDP projection for India to 6.7%, down from 6.9%.
- April‑June quarter growth registered at 6.7%, lagging behind expectations and the prior 7.8% pace.
- Reduced fiscal outlays during elections, subdued urban consumption, and weaker vehicle sales are cited as primary drags.
- Goldman Sachs and J.P. Morgan still see FY25 growth at 6.5%.
- Nomura expects inflation easing and higher post‑election spending to rekindle momentum, though corporate profit and credit expansion remain fragile.
Detailed Insights
Official statistics reveal that India’s economy expanded by 6.7% in the July‑September quarter, marking a slowdown from the 7.8% recorded in the previous quarter and falling short of market forecasts. In response, Nomura revised its FY25 growth outlook from 6.9% to 6.7%. The bank attributes the deceleration to three interlinked forces:
- Fiscal restraint during elections: Central and state governments curtailed non‑defense spending as electoral considerations took precedence, curbing aggregate demand.
- Flagging consumer appetite: Urban households faced high borrowing costs and slower wage growth, dampening discretionary spending.
- Sluggish industrial output: Sales of passenger and commercial vehicles fell sharply, signalling reduced manufacturing activity.
Contrastingly, major investment banks such as Goldman Sachs and J.P. Morgan maintain a more sanguine FY25 estimate of 6.5%, reflecting divergent assumptions about policy support and private sector resilience.
Looking ahead, Nomura forecasts a modest rebound, projecting FY26 growth at 6.8% predicated on anticipated inflation moderation and a revival in government expenditure. Nevertheless, the firm warns that muted corporate profit growth and a slowdown in credit growth could continue to weigh on the broader economic trajectory.
Key Concepts
- Fiscal restraint: Deliberate reduction in government spending, often to manage deficits or accommodate political cycles.
- Consumer demand elasticity: The sensitivity of household spending to changes in interest rates, wages, and confidence.
- Industrial activity gauge: Metrics such as vehicle sales that serve as proxies for manufacturing health and broader economic vigor.