Growth Stalls At 6.4%: A Keen Look At Roadblocks Facing Indian Economy

India’s economic growth has slipped to a four-year low of 6.4% in FY 2024–25, down from 8.2% the previous year. The slowdown is driven by a mix of cyclical and structural factors—ranging from subdued private consumption and faltering investments to muted exports and tighter monetary policy. While sectors like agriculture and services showed resilience, they couldn’t counterbalance declining industrial output and weak consumer demand. Experts suggest that long-term recovery hinges on infrastructure expansion, digital inclusion, education reform, and improved fiscal efficiency

Amidst the euphoria that the Indian economy is making long strides, here comes the bad news that India’s economy experienced a significant slowdown in the fiscal year 2024-25, with real Gross Domestic Product (GDP) growth projected at 6.4%—a four-year low compared to 8.2% in the previous fiscal year (FY 2023-24). This deceleration, as reported by the National Statistics Office (NSO) in its first advance estimates, marks a notable departure from the robust growth rates of over 7% in the preceding three years.

The downturn, particularly evident in the July–September 2024 quarter at 5.4% growth, has raised concerns among policymakers, economists, and investors. Several interconnected factors contributed to this economic slowdown, ranging from domestic policy challenges to global economic headwinds. This article explores the primary reasons behind India’s GDP falling to its lowest level in four years, drawing on data and expert analyses to provide a comprehensive understanding.

Experts say one of the primary reasons for the GDP growth slowdown is the cyclical deceleration in the Indian economy, as noted by economists like Paras Jasrai from India Ratings and Research. The economy faced a strong base effect due to the high growth rates in previous years, particularly the 8.2% growth in FY 2023-24. A high base from the previous year makes it mathematically challenging to achieve similar growth rates, even if absolute economic output increases. The NSO data indicates that the economy grew by 6% in the first half of FY 2024-25, with a projected rebound to 6.8% in the second half, yet the overall annual growth was dragged down by the weaker performance in the first two quarters—particularly the 5.4% growth in Q2 (July–September 2024), the lowest in seven quarters.

The industrial sector, a critical driver of economic growth, experienced a marked slowdown in FY 2024-25. Manufacturing Gross Value Added (GVA) growth nearly halved, dropping from 9.9% in FY 2023-24 to 5.3% in FY 2024-25, according to NSO estimates. This decline was particularly pronounced in the July–September 2024 quarter, where manufacturing growth plummeted to 2.2% from 7% in the previous quarter. Economists attribute this to a combination of factors, including high borrowing costs, low demand, and declining corporate profit margins.

Economist Prem Bhutani says the disappointing GDP figures align with lackluster corporate earnings, particularly in manufacturing, where companies delayed expansions due to subdued demand and elevated interest rates. Additionally, the mining and quarrying sector saw GVA growth slow to 2.9% from 7.1% in the previous year, further weighing on industrial output.

Investment activity, a key pillar of economic growth, also faltered in FY 2024-25. Gross Fixed Capital Formation (GFCF), an indicator of fresh investments in the economy, grew at a modest 6.4% compared to 9% in FY 2023-24. This slowdown reflects a decline in both private and public sector capital expenditure. Private sector investment remained sluggish despite favorable conditions, as stated by Crisil chief economist Dharmakirti Joshi, due to weak demand and stricter lending norms imposed by the Reserve Bank of India (RBI). On the public sector side, government capital expenditure contracted significantly in the first quarter of FY 2024-25, with a reported decline of 35%, according to Controller General of Accounts (CGA) data. This reduction was partly due to reduced government spending during the general election period, which disrupted infrastructure projects and other capital-intensive initiatives. The combination of these factors constrained investment-driven growth, a critical component of GDP.

Government expenditure, a significant driver of India’s post-pandemic recovery, saw a notable contraction in FY 2024-25. Government Final Consumption Expenditure (GFCE) contracted by 0.2% in the April–June 2024 quarter, reflecting reduced public spending, particularly during the general election phase. The government’s commitment to fiscal consolidation, aiming to reduce the fiscal deficit to 4.9% of GDP in FY 2024-25 and below 4.5% by FY 2025-26, led to lower capital expenditure, particularly in the first half of the fiscal year. While this fiscal discipline is expected to improve the fiscal deficit-to-GDP ratio to 4.65%, as projected by HDFC Bank economists, it came at the cost of reduced economic stimulus. The decline in government spending, a key growth engine in previous years, contributed to the overall slowdown in economic activity.

Private consumption, which accounts for approximately 60% of India’s GDP, also weakened in FY 2024-25. Private Final Consumption Expenditure (PFCE) growth slowed to 6% in the July–September 2024 quarter from 7.4% in the previous quarter, reflecting a decline in demand for both durable and non-durable goods. Rising inflation, hovering around 6%, squeezed disposable incomes and eroded consumer confidence, particularly in urban areas. High borrowing costs, driven by the RBI’s decision to maintain the repo rate at 6.5% to curb inflation, further dampened household spending. Additionally, stricter RBI regulations on unsecured lending slowed household credit growth, limiting consumption. Posts on X echoed these concerns, with users highlighting rising inflation and weak real wage growth as key factors squeezing consumer purchasing power.

Global economic conditions also played a role in India’s GDP slowdown. Weak global demand, particularly from major trading partners, impacted export-oriented sectors. India’s exports, which performed well during the pandemic, faced headwinds in FY 2024-25 due to economic slowdowns in key markets and rising geopolitical tensions, such as uncertainties surrounding US-China relations. The merchandise export sector, a significant contributor to GDP, wavered as global demand weakened. Despite India’s strong domestic demand-driven economy—with consumption and investment accounting for 70% of economic activity—the slowdown in exports added pressure on growth.

RBI’s monetary policy stance, focused on controlling inflation, contributed to the economic slowdown. With inflation hovering around 6%, the RBI maintained the repo rate at 6.5%, leading to high borrowing costs that impacted both consumer spending and corporate investments.

Beyond cyclical factors, structural issues in the Indian economy also contributed to the slowdown. India faces persistent challenges such as high unemployment, rising income inequality, and low workforce productivity, as noted in economic analyses.

India’s GDP growth slowing to a four-year low of 6.4% in FY 2024-25 reflects a confluence of cyclical and structural factors. While sectors like agriculture, construction, and financial services showed resilience, their growth could not offset the broader slowdown.

Now, the moot question is: How can India achieve a faster pace of GDP growth? It is a complex challenge requiring a multi-pronged strategy.

According to . S.K. Gambhir, the Delhi-based financial matters expert, India must attract more and more FDI.

Accelerate the development of roads, railways, ports, airports, and power generation/transmission. The National Infrastructure Pipeline (NIP) and PM Gati Shakti are steps in this direction.

Experts also say that India should continue to expand internet access, promote digital literacy, and leverage technology for public service delivery and economic activity. Improve the quality of primary, secondary, and higher education. Focus on vocational training and skill development aligned with industry needs. Implement the National Education Policy (NEP) effectively.

“Increase public spending on healthcare, improve access to quality healthcare services, and focus on preventive care. A healthy workforce is a productive workforce. Maintain a stable, predictable, and non-adversarial tax regime. Continue to streamline GST.

Strategically negotiate Free Trade Agreements (FTAs) that benefit Indian industries,” . S.K. Gambhir concludes.

(The author is Delhi-based senior journalist and writer. He is author of Gandhi's Delhi which has brought to the forth many hidden facts about Mahatma Gandhi)