India’s Q1 GDP growth to dip to 6-quarter low of 6%: ICRA

India’s economic growth (GDP) could moderate to a six-quarter low of 6% in the April-June (Q1 FY25) quarter from 7.8% in the previous quarter (Q4 FY2024), amid a contraction in government capital expenditure and a dip in urban consumer confidence, according to the latest report by ratings agency ICRA.

The growth in the gross value added (GVA) is estimated to ease to 5.7% in Q1 FY25 from 6.3% in Q4 FY24. The easing of GVA growth could be driven by the industrial (to 6.4% from 8.4%) sector, along with a mild easing in the services expansion (to 6.5% from 6.7%) and a slight pick-up in agri (to 1.0% from 0.6%).

ICRA's Q1 GDP estimates are significantly lower than the Reserve Bank of India’s (RBI) recent forecast on August 8, 2024. In its monetary policy announcement, the RBI projected the country's real GDP growth in Q1 FY25 at 7.1%, with the full-year economic growth estimate at 7.2%.

The ratings agency says the first quarter could see the gap between the GDP and the GVA moderate to 30 basis points (bps) in Q1 from 148 bps in the previous quarter due to an expected lower expansion in the net indirect taxes in the wake of a turnaround in the subsidy outgo.

“Q1 FY2025 saw a temporary lull in activity in some sectors related to 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," says Aditi Nayar, chief economist, ICRA.

She says lower volume growth, combined with diminishing gains from commodity prices, weighed upon the profitability of some industrial sectors in Q1 FY25. The heat wave also affected footfalls in various service sectors, even as it provided a significant boost to electricity demand, she adds.

For the full-year FY25, ICRA expects a back-ended pick-up in economic activity to boost the GDP and GVA growth to 6.8% and 6.5%, respectively. “In particular, there is considerable headroom for the GoI’s capital expenditure, which needs to expand by 39% in YoY terms in July-March FY2025 to meet the Budget Estimate for the full year. This is expected to catapult GDP growth back above 7% in H2 FY2025,” says Nayar.

India’s GDP had beaten the market expectations as the economy grew 7.8% in the January-March quarter of FY2023-24, with the full-year growth coming in at 8.2% in FY24 vs 7.0% in FY23. The country's real GVA (gross value added) had grown by 7.2% in 2023-24 over 6.7% in 2022-23, mainly due to significant growth in the manufacturing sector and growth in the mining and quarrying sectors.