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13 Mar 2025 : What the recent GDP data revisions reveal

Editorial 1: What the recent GDP data revisions reveal

Context

Both real and nominal growth rates have been adjusted upward, influencing medium-term potential growth and guiding long-term strategic planning.

Introduction

On February 28, 2025, the National Statistical Office (NSO) released national accounts data, providing two key insights. First, it includes revised annual estimates of GDP and GVA for 2022-23, 2023-24, and 2024-25. Second, it presents Q3 2024-25 GDP and GVA estimates along with the second advance estimates for 2024-25.

 

Third quarter growth, sectoral performance

  • GDP Growth (%):
    • Q1: 6.5%
    • Q2: 5.6%
    • Q3: 6.2%
    • Q4 (Projected): 7.6% (uncertain)
  • Sectoral Performance:
    • Agriculture Growth: 5.6% in Q3
    • Manufacturing Growth: Improved from 2.1% in Q2 to 3.5% in Q3
    • Trade & Hospitality Growth: Increased from 6.1% in Q2 to 6.7% in Q3
  • Contribution to GDP Growth:
    • PFCE (Private Final Consumption Expenditure):
      • Q1: 4.3 pp
      • Q2: 3.3 pp (decline impacted GDP)
      • Q3: 4.1 pp
      • Q4: 5.3 pp (requires 9.9% PFCE growth, which seems unlikely)
    • Investment Contribution:
      • Q1: 2.3 pp
      • Q2: 2.0 pp
      • Q3: 1.8 pp (decline partly caused lower GDP growth)
      • Q4: 2.1 pp (depends on government spending)
  • Government Capital Expenditure:
    • ₹7.57 lakh crore spent till January 2025
    • Needs an additional ₹2.61 lakh crore in the last two months
  • Challenges for Q4 Growth: PFCE decline in Q2 impacted GDP growth.
    • Achieving 7.6% GDP growth requires 9.9% PFCE growth, which is difficult.
    • Government must meet revised spending estimates, but past trends suggest shortfall.
    • If government spending falls short, full-year GDP growth of 6.5% may be revised downward.

 

Annual data revisions

  • Upward Revision in Growth Rates: Both real and nominal GDP growth rates have been revised upwards.
    • Real GDP growth estimates:
      • 2022-23: 7.6%
      • 2023-24: Revised from 8.2% to 9.2%
      • 2024-25: 6.5% (showing a decline from the previous year)
    • GVA growth for 2023-24 revised from 7.2% to 8.6%.
  • Sectoral Revisions: Manufacturing saw the highest upward revision: +2.4 percentage points.
    • Financial, real estate, and related services grew by +1.9 percentage points.
  • Decline in 2024-25 Growth: Real GDP growth fell by 2.7 percentage points compared to 2023-24.
    • Major reason: Gross Capital Formation (GCF) growth dropped from 10.5% (2023-24) to 5.8% (2024-25).
  • Impact on ICOR (Incremental Capital-Output Ratio): Revised estimates for ICOR:
      • 2022-23: 4.8
      • 2023-24: 4.0 (considerably lower)
      • 2024-25: 5.5
      • Average ICOR for 2022-23 & 2024-25: 5.1.
      • Large discrepancies in 2023-24 may lead to further revisions.
  • Policy Challenges: Frequent and sharp revisions make policymaking and economic planning more difficult.

 

Prospects for 2025-26, medium-term growth

Metric

2022-23

2023-24

2024-25

2025-26 (Projected)

Nominal GDP Growth (%)

14.0%

12.0%

9.9%

Likely higher than 10.1% (Budget assumption)

Real GDP Growth (%)

7.6%

9.2%

6.5%

Estimated at 6.3%-6.8% (Mid-point: 6.55%)

Potential Medium-Term Growth (%)

—

—

—

6.5% (if government investment remains strong)

Private Investment Outlook

—

—

—

Needs more time to gain momentum

PFCE (Private Final Consumption Expenditure) to GDP Ratio

—

—

—

Increasing PFCE may boost consumption demand, but it could reduce investment demand

 

Conclusion

In 2023-24, the nominal saving rate is estimated at 30.7%, slightly below the pre-COVID average of 31.2%. To boost growth, increasing savings and investments should be a priority. The real investment rate is usually higher than the nominal rate due to differences in price changes between investment and consumer goods. In 2024-25, the real investment rate (GFCF to GDP ratio) is expected to be 33.4%, with an ICOR of 5.1, leading to a potential growth rate of 6.5%. For now, investment-driven growth remains a strong long-term strategy.