Business

GDP growth rate likely to remain below 7%

Business Business: According to analysts, economic growth has moderated in the first quarter of the financial year (Q1FY25) and GDP growth is estimated to be less than 7%. The slowdown in economic activity is partly due to lower government expenditure due to the general elections as well as the effect of a high base. Rating agency Crisil has projected GDP growth at 6.8% in the April-June quarter. Meanwhile, ICRA has projected GDP year-on-year expansion to narrow to a six-quarter low of 6% amid a slowdown in government capital expenditure and a drop in urban consumer confidence. Acuite Ratings & Research has projected GDP growth at 6.4% in the first quarter of the financial year. This is a significant slowdown in economic growth from 7.8% GDP growth in Q4FY24 and 8.2% in Q1FY24. The official quarterly GDP estimates for the April to June 2024-25 quarter will be released on August 30 by the Ministry of Statistics and Programme Implementation. Earlier, the Reserve Bank of India projected GDP growth at 7.1% in the first quarter of the fiscal.

Aditi Nayar, Chief Economist, Head-Research and Outreach, ICRA, said that the first quarter saw a temporary slowdown in activity in some sectors due to parliamentary elections and sluggish government capital expenditure for both the Centre and the states. In addition, the May 2024 (and July 2024) round of the central bank’s Consumer Confidence Survey recorded a surprise decline in urban consumer confidence, while the lingering effects of last year’s adverse monsoon and an uneven onset of the 2024 monsoon prevented a broad improvement in rural sentiment. She further added, “Profitability of some industrial sectors was impacted due to low volume growth and subdued commodity prices.” According to CGA data, capital expenditure between April and June this fiscal was only Rs 1.81 lakh crore, or 16.3% of the Rs 11.1 lakh crore budgeted for the fiscal.

Suman Chowdhury, executive director and chief economist at Acuite Ratings & Research, said the general pace of domestic economic activity in Q1 FY25 has seen some moderation, with some high frequency indicators indicating extreme heat conditions in some sectors of the economy as well as the adverse impact of the general elections. “Lower growth in industrial production and lower-than-expected profitability could lead to weaker GVA growth in the manufacturing sector,” he said. The agency expects GVA growth to moderate to 6% in Q1, but said a partial recovery in rural demand during the quarter is likely to offset better growth in private consumption. ICRA also expects GVA growth to narrow to 6.5% in Q1 FY25. “The gap between GDP and GVA growth is likely to narrow to around 30 basis points in Q1 FY25 from 148 basis points in the previous quarter. This is due to lower-than-expected expansion in net indirect taxes in Q1 FY25 on account of improvement in subsidy expenditure of the Government of India,” it said. SBI Ecowrap has projected GDP growth at 7-7.1% for the first quarter, with a downward revision expected. However, GVA will remain below 7.0% and may fall in the range of 6.7-6.8%, it said on Monday.

Back to top button