Context:

• The "SBI Ecowrap: Outlook of the Indian Economy – FY 2025-26" report, released by the Economic Research Department of the State Bank of India (SBI), presents a detailed analysis of India’s economic growth, inflation, monetary policy, and potential risks.

Key Points:

1. Economic Growth and GDP Rate:

• India is expected to remain the fastest-growing major economy in the world in FY 2025-26 (FY26), with an estimated GDP growth rate between 6.3% and 6.5%.
• In Q4 of FY25, the GDP growth rate stood at 7.4%, slightly lower than 8.4% in the same quarter of the previous year, but still a highly positive sign.
• For the entire FY25, the GDP growth rate was 6.5%, highlighting India's strong global position.

2. Key Pillars of Growth:

• Capital Formation: Capital formation in Q4 FY25 registered a 9.4% annual growth, which was a major pillar of GDP growth.
• In FY25, overall capital formation grew at 7.1%. This was made possible due to the strengthening of core sectors and improvement in high-frequency indicators.
• Industry and Services Sector: In Q4, the industrial sector grew by 6.5%, and the services sector by 7.3%.
• Notably, the construction sector recorded a sharp growth of 10.8% – the highest in the past six quarters. The manufacturing sector also saw a positive growth of 4.8%.
• Private Consumption: In FY25, the annual growth in private consumption was 7.2%, although it slowed down slightly in Q4.
• Exports and Imports: Exports grew by 6.3% in FY25, while imports declined by 3.7%.
• In Q4, a significant 12.7% drop in imports further supported GDP growth.
• This export growth was driven by prioritizing exports amidst the uncertainties of U.S. tariff policies.

3. Inflation and Monetary Policy:

• According to the Reserve Bank of India (RBI), inflation is expected to remain within the target range (CPI 4% ± 2%) in FY26.
• In March 2025, CPI inflation was at 3.34%, the lowest in 67 months.
• RBI has reduced the repo rate by 25 basis points to 6% and changed the policy stance from 'neutral' to 'accommodative' to promote growth.
• According to SBI Research, RBI may reduce rates by a total of 125–150 basis points in FY26 to support growth and address declining inflation.

4. Economic Stability and Risks:

• India’s strong macroeconomic fundamentals, robust financial system, and commitment to sustainable growth are expected to keep the economy on a stable and strong growth trajectory, despite global uncertainties and geopolitical risks.
• U.S. tariff policies and uncertainties in global trade may affect exports and market stability, but India has responded by prioritizing exports.

State Bank of India (SBI)

• The foundation of SBI dates back to June 2, 1806, when it was established as the Bank of Calcutta, later renamed as Bank of Bengal on January 2, 1809.
• Subsequently, the Bank of Bombay (1840) and the Bank of Madras (1843) were established.
• These three banks were the major Presidency Banks during British India.
• On January 27, 1921, these three banks merged to form the Imperial Bank of India, the largest bank in the country at that time.
• After independence, on July 1, 1955, the Reserve Bank of India nationalized the Imperial Bank and renamed it the State Bank of India (SBI).
• Thus, SBI is the successor of the Imperial Bank of India.
• Headquarters: Mumbai, Maharashtra
• Current Chairperson: Challa Sreenivasulu Setty (27th Chairperson)
• First Chairperson: John Matthai, appointed after nationalization in 1955

Gross Domestic Product (GDP)

• It refers to the monetary value of all final goods and services produced within a country's borders during a specific time period.
• GDP is a comprehensive measure of a country’s economic health. The GDP growth rate is a key indicator of economic performance, reflecting a country's health, development, and progress.

Three Main Methods of GDP Calculation:

(A) Production/Output Method

• Adds up the total market value of all goods and services produced in a year across sectors.
• Formula:

GDP = Total value of goods/services produced by all sectors (agriculture, industry, services) – Intermediate costs

(B) Expenditure Method

• Adds up all spending on final goods and services within a country.
• Formula:

GDP = C + I + G + (X – M)

• C = Consumption expenditure
• I = Investment expenditure
• G = Government spending
• X = Exports
• M = Imports

(C) Income Method

• Sums the total income earned by factors of production (wages, rent, interest, profit) within the country.
• Formula:

GDP = Wages + Rent + Interest + Profit + (Taxes – Subsidies)

Types of GDP:

Nominal GDP:

• Measured at current market prices, includes the effect of inflation.

Real GDP:

• Measured at constant (base year) prices, removing the effect of inflation.
• Formula: Real GDP = Nominal GDP ÷ GDP Deflator

GDP Per Capita:

• Indicates the average production/income per person.
• Formula: GDP Per Capita = Total GDP ÷ Population

Other Important GDP Measures:

• GDP at Market Price: GDP including indirect taxes and excluding subsidies.
• GDP at Factor Cost: GDP excluding indirect taxes and including subsidies.
• GNP (Gross National Product): Total income earned by a country’s citizens both domestically and abroad.
• NNP (Net National Product): GNP minus depreciation.

Change in GDP Calculation Method in India (Post-2015):

• Base Year: Changed from 2004–05 to 2011–12.
• Adoption of GDP at Market Price in place of GDP at Factor Cost.
• Data Sources: Made broader and more modern (e.g., MCA 21 database).
• Calculation across agriculture, industry, and services made more detailed and accurate.

Note:

• The Government of India plans to revise the base year for GDP calculation from 2011–12 to 2022–23.
• The objective is to better reflect the evolving economic structure, consumption patterns, and new economic sectors, enhancing the accuracy and reliability of GDP data.