L&T India | Financials | Annual Report Highlights | Management Discussion & Analysis

Economy

Indian Economy

Despite the prevailing global uncertainties, the Indian economy is estimated to grow between 6.25-6.50% during the current year 2024-25. The agriculture sector is expected to grow ~4%, the industrial sector ~6% and the services sector ~7%. In absolute terms, the agriculture sector continued to operate well above pre-pandemic trend levels. Whereas, in the industrial sector, sustained growth through FY 2023-24 and FY 2024-25, has led to the closure of the trend gap. The recovery within the services sector has been uneven, and as a result, the sector is only now approaching its long-term trend levels.

India’s headline inflation, as measured by the Consumer Price Index (CPI), has eased considerably during the year. The monthly average CPI print was 4.63% in FY 2024-25 vs. 5.35% in FY 2023-24. This decline was primarily led by a decrease in core services and fuel price inflation. Food price inflation continued to hold firm impacted by weather related supply disruptions. For FY 2025–26, the Reserve Bank of India (RBI) has forecast CPI inflation at 4%, based on the expectation of a normal monsoon.

Policy rates remained unchanged through the AprilDecember 2024 period with the repo rate at 6.50%. However, with relatively weaker growth prints and falling underlying inflation, the Monetary Policy Committee (MPC) changed its policy stance from ‘Withdrawal of Accommodation’ to ‘Neutral’ in October 2024. Further, to inject liquidity into the banking system a reduction in CRR to 4.00% of NDTL from 4.50% was announced in December 2024. In February 2025, the RBI lowered the repo rate to 6.25% in response to downward revisions in growth forecasts for H1 FY 2025-26, while keeping the inflation trajectory aligned with its target.

The external trade sector has demonstrated stability and growth despite uncertainties in the global trade environment. In FY 2024-25, export trade in merchandise and services exceeded USD 800 billion, a growth of 5.5%. Total imports during the period are estimated at USD 915 billion, registering a growth of 6.8%.

After a relative stable H1 FY 2024-25, the rupee weakened against the USD by around 5% in the period from October to (mid) February, a period which saw increased financial market volatility. While Foreign Portfolio Investment (FPI) inflows were positive, amounting to approximately USD 20 billion in H1 FY 2024-25, the trend reversed in H2 FY 2024-25, with net outflows of a similar magnitude. Investments in debt securities saw net inflows of around USD 15 billion, whereas equity investments registered net outflows of a comparable amount for FY 2024-25.

The Indian economy is expected to remain resilient, supported by robust consumption from households, alongside the government’s continued focus on capital expenditure. Capacity utilisation in manufacturing remains high and balance sheets of banks and corporates remain healthy. The economy has also undergone rapid digitalisation over the past decade, significantly boosting productivity. The service sector has increasingly shifted towards high-tech digital solutions, including e-commerce, fintech, cloud computing and AI-driven services.

The risks to growth remain largely external – rising tariff barriers, stretched supply chains and continuing geopolitical tensions. The country will have to adapt to the evolving global landscape and harness its domestic strengths to drive growth in a sustainable manner.

Global Economy

World GDP grew by 2.7% in calendar year 2024, with regional growth varying significantly. The United States saw robust growth at 2.8%, while the Eurozone experienced more subdued growth at 0.8%. Growth in emerging markets was driven by India and China, which recorded growth rates of 6.5% and 5%, respectively. For the most part, the year was marked by improving financial conditions, declining inflation and a partial de-escalation of regional conflicts.

In the United States, the balance of risks has shifted from inflation to growth, as the effects of increased tariff measures would begin to impact the economy. In addition, changes in the regulatory environment, immigration policies and fiscal policy are expected to influence the dynamics between growth and inflation. The upside risk to inflation from tariffs, coupled with the downside risks to growth, could create a challenging environment for monetary policy. Technology is expected to remain a bright spot for the US economy in 2025, with spending projected to surpass USD 2 trillion for the first time.

The economies of Europe and UK continue to remain fragile. However, the commitment by Germany to permit fiscal loosening through a special EUR 500 billion off-budget infrastructure fund, to be disbursed over a decade, could alter the medium-term growth dynamics for Europe.

China would be the most directly impacted economy if the tariffs imposed by the United States take effect. To stabilise the economy, the government may employ a combination of monetary easing and fiscal support measures aimed at boosting domestic consumption and addressing weaknesses in the property sector.

The Gulf Cooperation Council (GCC), led by Saudi Arabia, is likely to continue strengthening both the physical and digital infrastructure of the region, in addition to monetising its oil & gas assets. As GCC countries embark on the transition from oil to clean energy and pursue various industrialisation initiatives, the region’s growth opportunities remain healthy.

With global cross-border trade and investment flows slowing there is a growing risk of rising cost pressures, reduced productivity and slower efficiency gains. However, with trade in services not being directly affected by tariffrelated disruptions, the global IT outsourcing market is expected to remain relatively resilient. India’s technology sector is expected to grow by around 5% in FY 2025-26, with revenues projected to exceed USD 300 billion.

India remains relatively insulated from global headwinds and is on track to become the world’s third-largest economy in the medium-term. It continues to be one of the fastest-growing large economies, supported by favourable demographics, investment led impetus, and ongoing regulatory reforms.