The ICRA estimate is much lower than the RBI’s GDP projection. The RBI has projected the real GDP growth for the first quarter of 2024-25 at 7.1 per cent.
Rating firm ICRA has projected the year-on-year (YoY) expansion of the country’s GDP to fall to a six-quarter low of 6.0 per cent in first quarter (Q1) of FY2025 from 7.8 per cent in Q4 FY2024 amid a contraction in government capital expenditure and a dip in urban consumer confidence.
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The ICRA estimate is much lower than the RBI’s GDP projection. The RBI has projected the real GDP growth for the first quarter of 2024-25 at 7.1 per cent.
The first quarter of 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, ICRA said. Further, urban consumer confidence reported a surprising downtick in the May 2024 (and July 2024) rounds of the RBI’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, it said.
“Lower volume growth combined with diminishing gains from commodity prices weighed upon the profitability of some of the industrial sectors,” said Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA.
Further, the growth in the gross value added (GVA) is estimated to ease to 5.7 per cent in Q1 FY2025 from 6.3 per cent in Q4 FY2024, driven by the industrial sector, along with a mild easing in the expansion in services and a slight pick-up in the agricultural GVA growth, ICRA said.
GVA is a measure of the value of goods and services produced in an area, industry, or sector of an economy.
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Further, the gap between the GDP and the GVA growth is likely to moderate to 30 basis points (bps) in Q1 FY2025 from 148 bps in the previous quarter. “This is on account of an expected lower expansion in the net indirect taxes in Q1 owing to a turnaround in the subsidy outgo of the government (+3.6 per cent in Q1 as against -24.2 per cent in Q4 of FY2024),” ICRA said.
The heat wave also affected footfalls in various services sectors, even as it provided a significant boost to electricity demand, it said. “On balance, we foresee a transient moderation in India’s GVA and GDP growth in Q1 of FY2025 to 5.7 per cent and 6.0 per cent, respectively,” it said.
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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 per cent and 6.5 per cent, respectively. In particular, there is considerable headroom for the government’s capital expenditure, which needs to expand by 39 per cent in YoY terms in July-March FY2025 to meet the Budget Estimate for the full year, it said.
India witnessed a transient lull in the investment activity in Q1 FY2025. For instance, the capital expenditure of the Central government and 22 state governments (capital outlay and net lending for states except Arunachal Pradesh, Assam, Goa, Gujarat, Manipur and Sikkim) recorded a YoY contraction of 35 per cent and 23 per cent, respectively, in Q1 FY2025, it said.
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ICRA said the performance of half of the 14 indicators tracked by ICRA saw a deterioration in Q1 FY2025 relative to Q4 FY2024, which can partly be attributed to the heatwave conditions that dampened mobility/travel. These include air cargo traffic, rail freight, consumption of petrol and diesel, GST e-way bills, domestic airlines’ passenger traffic and CP volumes, it said.
