Economic growth in the first quarter of the fiscal year 2024-25 (Q1FY25) appears to have moderated, with GDP growth estimated to have fallen below 7%, according to various analysts. This slowdown is attributed in part to reduced government expenditure due to the General Elections and the impact of a higher base from the previous year.
Rating agency Crisil has projected GDP growth at 6.8% for the April–June quarter. Similarly, ICRA has predicted that the year-on-year GDP expansion will drop to a six-quarter low of 6% due to a contraction in government capital expenditure and a decline in urban consumer confidence. Acuité Ratings & Research has also estimated a GDP growth of 6.4% for the first quarter of the fiscal year.
This represents a significant decline from the 7.8% GDP growth seen in Q4FY24 and an even higher 8.2% in Q1FY24. The official GDP estimates for Q1FY25 will be released by the Ministry of Statistics and Programme Implementation on August 30. Previously, the Reserve Bank of India had forecasted GDP growth at 7.1% for the first quarter of the fiscal year.
Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA, noted that Q1 experienced a temporary slowdown in some sectors due to the Parliamentary elections and sluggish government capital expenditure at both the central and state levels.
Urban consumer confidence saw a surprising decline in the May and July 2024 rounds of the Central Bank’s Consumer Confidence Survey. Additionally, the lingering effects of last year’s unfavorable monsoon and an uneven start to the 2024 monsoon hindered 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,” Nayar added.
According to CGA data, capital expenditure between April and June this fiscal year was only Rs 1.81 lakh crore, or 16.3% of the budgeted Rs 11.1 lakh crore for the fiscal year.
Suman Chowdhury, Executive Director and Chief Economist at Acuité Ratings & Research, observed that domestic economic activity has seen some moderation in the first quarter of the fiscal year. High-frequency indicators suggest an adverse impact from the general elections and extreme summer heat in certain 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 stated.
Acuité expects GVA growth to moderate to 6% in the first quarter, though a partial recovery in rural demand during the quarter could support better growth in private consumption. ICRA also anticipates GVA growth to ease to 6.5% in Q1FY25, noting that the gap between GDP and GVA growth is likely to narrow to about 30 basis points, compared to 148 basis points in the previous quarter. This is largely due to an expected lower expansion in net indirect taxes as a result of a turnaround in the government’s subsidy outgo.
SBI Ecowrap has forecasted GDP growth for Q1FY25 at 7–7.1%, with a downward bias, while predicting that GVA growth will likely be below 7.0%, possibly falling in the range of 6.7-6.8%.
In the first quarter of FY24, GVA at basic prices expanded by 8.3%, but the divergence between GVA and GDP grew in subsequent quarters. GVA expanded by 6.8% in the third quarter of FY24 compared to 8.6% GDP growth during the same period. In the fourth quarter of the last fiscal year, GVA growth was recorded at 6.3%.
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