India's growth to pick up in H2 FY25: ICRA

Rating agency ICRA expects India’s economic growth momentum to pick up in the second half of the current financial year (October 2024–March 2025 or H2 FY25) due to improvement in rural demand following the favourable monsoon turnout and kharif sowing and the headroom the government has to accelerate capital expenditure (capex) growth due to tepid spending during April-August 2024 period. “ICRA expects the slowdown in economic growth in Q2 FY25 to be transient. We foresee the GVA growth to improve to above 7.0% in H2 FY25,” the agency states.

The year-on-year (YoY) growth in economic activity, as measured by the ICRA Business Activity Monitor -- an index of high-frequency indicators, improved to 7.2% in September 2024 from a 16-month low of 6.1% in August 2024, partly aided by a favourable base. As many as nine of the 15 constituent indicators saw an improvement in their growth performance in September 2024 relative to August 2024, with the two-wheeler output and GST e-way bills (supported by pre-festive stocking) registering a sharp uptick, and Coal India’s output, electricity generation and diesel consumption witnessing a narrower contraction between these months.

ICRA analysis indicates that as per the data provided on the Vahan portal, the average daily vehicle registrations surged to about 68,000 units during October 1-21, 2024, from 52,800 units in the previous month, amid the onset of the festive season. On a YoY basis, the average daily vehicle registrations rose by a healthy 8.5% during October 1-21, 2024 after a contraction of 8.5% in September 2024. Furthermore, the YoY growth in the all-India electricity demand inched up to 1.1% in October 2024 (until October 20, 2024) from 0.6% in September 2024, while remaining subdued on a high base. Going forward, both these indicators, along with those related to mobility, are expected to improve further amid a seasonal uptick in demand during the festive period, ICRA estimates.

However, in quarterly terms, YoY growth in the Index moderated to 7.9% in Q2 FY25 (lowest in five quarters) from 10.1% in Q1 FY25, with excess rainfall impacting mining activity, electricity generation and retail footfalls. As many as 10 of the 17 indicators saw deceleration in their growth performance between these quarters, the agency says. Also, auto-related indicators (including passenger vehicle production and vehicle registrations) weakened in Q2 FY25 vis-à-vis Q1 FY25 amid high dealership inventory and sluggish demand. Given these trends, ICRA expects the GVA growth to ease slightly to 6.4% in Q2 FY25 from 6.8% in Q1 FY25, even as the fall in commodity prices would have supported margins of some sectors.

The ICRA Business Activity Monitor is constructed using 14 monthly high-frequency indicators – auto production (comprising passenger vehicle, motorcycle and scooter production clubbed into a single indicator), output of Coal India Limited, electricity generation, non-oil merchandise exports, rail freight traffic, ports cargo traffic, non-food bank credit of scheduled commercial banks, bank deposits, vehicle registrations, generation of GST e-way bills, domestic airlines’ passenger traffic, petrol consumption, diesel consumption and steel consumption.