The Indian economy is on track for a 7% growth in FY25, despite experiencing a slowdown to 6.7% in the first quarter of FY25. This forecast, detailed in the HSBC Global Research report titled "India GDP — Buoyant Momentum, Narrowing Gaps," reflects a positive outlook supported by strong underlying growth momentum and a narrowing of significant economic gaps.

In the first quarter of FY25, Gross Value Added (GVA) increased by 6.8%, up from 6.3% in the previous quarter. The Reserve Bank of India (RBI) has projected a 7.2% GDP growth for FY25, closely aligning with the International Monetary Fund’s (IMF) projection of 7%. The HSBC report also highlights the narrowing of four key economic gaps: between GDP and GVA, consumption and investment, industry and services, and exports and imports.

A notable development is the convergence of investment and private consumption growth. For six consecutive quarters, investment growth had been higher than private consumption growth, with an average of 7.5% compared to 3.2%. In Q1 FY25, this trend has moderated, reflecting a more balanced economic environment. This moderation in growth is attributed to a decline in government capital expenditure amid general elections and a drop in urban consumer confidence.

The report details that Gross Fixed Capital Formation (GFCF) grew by 34.8% annually in the first quarter of FY25, a slight increase from 34.6% in the same period last year. Despite the overall slowdown, industrial growth has continued to outpace services growth for the last three quarters. However, the report notes emerging signs of convergence, with industrial growth slowing primarily due to a decline in manufacturing, while services growth is accelerating. This acceleration is driven by public and private services and trade and transport services.

Another important factor is the expected improvement in food production and rural demand following the normalization of temperatures after a heatwave in March. This is likely to support economic growth in the coming quarters.

The report emphasizes the narrowing of significant economic gaps, which is a crucial indicator of the Indian economy's evolving landscape. The convergence of growth rates across different sectors and the expected improvement in key economic indicators reflect a robust and resilient economic framework, despite short-term slowdowns.

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