After a better-than-expected 7.6% expansion this fiscal, India’s real gross domestic product (GDP) growth will moderate to 6.8% in fiscal 2025 as higher interest rates and lower fiscal impulse temper demand.

Yet, India will retain its position as the fastest-growing large economy.

The fiscal impulse will be lesser because of the need to reduce the fiscal deficit to 5.1% of GDP next fiscal according to the glide path presaged. However, the nature of government spending will provide some support to the investment cycle and rural incomes.

Inflation softened this fiscal due to easing input costs and slower domestic demand, but elevated food inflation curbed a bigger decline in the headline number. We expect the softening to continue next fiscal on the back of healthier agriculture output that tames food inflation, and benign oil and commodity prices.

Growth momentum will continue through this decade, piggybacking significant private investments in emerging sectors, continuing government spending on infrastructure buildout, ongoing reforms push and efficiency gains from increasing digitalisation and physical connectivity.

Says Amish Mehta, Managing Director and CEO of CRISIL Ltd, “The next seven fiscals will see the Indian economy cross the $5 trillion mark and close in on $7 trillion at an estimated 6.7% average annual growth. By fiscal 2031, India will be the No. 3 economy and an upper middle-income country, which will be a big positive for domestic consumption. India’s manufacturing sector is at a sweet spot due to high capacity utilisation across key sectors, opportunities from global supply-chain diversification, thrust on infrastructure investment, the green-transition imperative and strong balance sheets of lenders. Continuous reforms, enhanced global competitiveness and moving up the value chain will boost the share of manufacturing in India’s GDP beyond the projected 20% in fiscal 2031.”

Through fiscal 2031, both cylinders of the economy — manufacturing and services — will fire, yielding a sturdier growth path.

Says Dharmakirti Joshi, Chief Economist, CRISIL Ltd, “There is ample opportunity for both manufacturing and services to cater to domestic and global demand. We project manufacturing and services to grow 9.1% and 6.9%, respectively, between fiscals 2025 and 2031. Despite some growth catch-up by manufacturing, services will remain the dominant driver of India’s growth.”

After years of stagnancy, fixed investments by private companies have started inching up and have ample headroom for growth, while government initiatives keep boosting the infrastructure segments.

Enhanced profitability and strategic deleveraging have created healthier balance sheets. Lenders are on a strong footing, too. Revenue growth of India Inc, projected at 9-10% next fiscal, will be healthy for the fourth straight fiscal. This augurs well for utilisation of existing capacities.

Our analysis shows industrial capex will rise to Rs 6.5 lakh crore annually on average between fiscals 2024 and 2028 from Rs 3.9 lakh crore in the preceding five fiscals.

Says Ashish Vora, President, CRISIL Market Intelligence & Analytics, “Opportunities across the emerging sectors will rise as India becomes integral to global supply chains. We see investments in the emerging sectors rising to 20% of the overall industrial capex between fiscals 2024 and 2028 from 2% in the past five. Electric vehicles, semiconductors and electronics will drive the bulk of this. Strong investment intent in the emerging sectors signals significant capacity additions.”

There will be near- and medium-term challenges posed by geopolitical uncertainties, global indebtedness, uneven economic recovery, climate change and technological disruptions. However, growth will take support from domestic structural factors and cyclical levers.

Overall, there is a deserved sense of optimism about India given its resilience and enormous growth opportunities.