GDP growth seen to moderate to less than 7% in Q1

Economic growth is seen to have moderated in the first quarter of the fiscal (Q1FY25) and GDP growth is estimated to have eased to less than 7%, according to analysts. The moderation in economic activities is seen to be partly due to lower government expenditure due to the General Elections as well as the impact of a higher base.

Rating agency Crisil has pegged GDP growth at 6.8% in the April–June quarter. Meanwhile, ICRA has projected the year-on-year expansion of the GDP to moderate to a six-quarter low of 6% amidst a contraction in government capital expenditure and a dip in urban consumer confidence. Acuité Ratings & Research has estimated GDP growth at 6.4% in the first quarter of the fiscal.

This is a significant slowing down in economic growth from 7.8% GDP growth in Q4FY24 and an even higher 8.2% in Q1FY24. Official quarterly GDP estimates for the April to June 2024-25 quarter will be released by the ministry of statistics and programme implementation on August 30. Previously, the Reserve Bank of India has forecast GDP growth at 7.1% in the first quarter of the fiscal.

Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA, said Q1 saw a temporary lull in activity in some sectors because of the Parliamentary elections and sluggish government capex, both for the Centre and the states.

Further, urban consumer confidence reported a surprising downtick in the May 2024 (and July 2024) rounds of the Central Bank’s Consumer Confidence Survey, while the lingering impact of last year’s unfavourable monsoon and an uneven start to the 2024 monsoon prevented a broader improvement in rural sentiment.

“Lower volume growth combined with diminishing gains from commodity prices weighed upon the profitability of some of the industrial sectors,” she further noted. 

As per CGA data, capital expenditure between April and June this fiscal was just Rs 1.81 lakh crore or 16.3% of the Budgeted Rs 11.1 lakh crore for the fiscal.

Suman Chowdhury, Executive Director and Chief Economist, Acuité Ratings & Research said that the general momentum of domestic economic activity has witnessed some moderation in the first quarter of the fiscal, with some high frequency indicators indicating an adverse impact of the general elections along with the excessive summer heat conditions in some sectors of the economy. “Lower growth in industrial output along with lower than expected profitability may translate to weaker GVA growth in the manufacturing sector,” he noted.

The agency expects GVA growth to moderate to 6% in the first quarter but said that a partial recovery in rural demand during the quarter is likely to lead to a better growth in private consumption.

ICRA also expects GVA growth to moderate to 6.5% in the first quarter of the fiscal. “The gap between the GDP and the GVA growth is likely to moderate to about 30 basis points in Q1 FY2025 from 148 bps in the previous quarter. This is on account of an expected lower expansion in the net indirect taxes in Q1 owing to a turnaround in the subsidy outgo of the Government of India,” it said.

SBI Ecowrap has forecast GDP growth for Q1 at 7–7.1%, with a downward bias. However, GVA will be below 7.0% and may be come in the range of 6.7-6.8%, it said on Monday.

GVA at basic prices expanded by 8.3% in the first quarter of FY24 but the divergence between the GVA and GDP grew in subsequent quarters. GVA expanded by 6.8% in the third quarter of FY24 compared to 8.6% GDP growth in the period. In the fourth quarter of last fiscal, GVA expanded by 6.3%.