Economic growth in India is projected to have decelerated to a five-quarter low of 6.5% in the first quarter of FY25, falling short of the Reserve Bank of India's (RBI) recent forecasts.
This slowdown is attributed to a reduction in government capital expenditure due to elections and the adverse effects of summer heatwaves on certain economic sectors, according to economists.
GDP growth for Q1FY25 is estimated to range between 6% and 7%, compared to 8.2% in Q1FY24 and 7.8% in Q4FY24.
In its August monetary policy, the RBI revised India's growth forecast for the April-June quarter downwards by 20 basis points to 7.1%, due to muted government capital expenditure, lower corporate profitability, and decreased core output, Mint reports.
However, the central bank maintained its full-year FY25 GDP growth estimate at 7.2%.
“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 (gross value added) growth in the manufacturing sector,” stated Suman Chowdhury, Executive Director and Chief Economist, Acuité Ratings & Research.
Chowdhury forecasts a moderation in GVA and GDP growth to 6.0% and 6.4%, respectively, in Q1FY25. He anticipates that a partial recovery in rural demand during the quarter will likely result in better growth in private consumption. His full-year GDP growth prediction stands at 6.8%.
Furthermore, rating agency ICRA has forecast that India's GDP growth will slow to a six-quarter low of 6.0% in Q1FY25, compared to 7.8% in Q4FY24, due to reduced government capital expenditure and declining urban consumer confidence.
“For the full-year FY2025, 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,” said Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA.
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Date for the month ending August, 2024
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