GDP growth likely to slow to 6.9% in Q1 of FY25, driven by lower public spending

GDP growth in Q1: GDP growth of India in first quarter of FY25 is likely to slow down to 6.9 per cent against RBI projection of 7.1 per cent for Q1 of FY25. growth witnessed in fourth quarter of GDP in FY24 stood at 7.8 per cent taking GDP growth for full year at 8.2 per cent for FY24. GDP growth as shown by Reuters poll in first quarter also stands at 6.9 per cent. Ministry of Statistics and Programme Implementation will declare GDP growth numbers for first quarter of FY25 on Friday.

GDP growth in first quarter of FY24 stood at 7.8 per cent.

growth numbers for nations have stood well above 7 per cent for most of quarters riding on back of robust capital expenditure by government. And growth numbers in first quarter are likely to slow down, driven by slow pace of capital expenditure and public spending due to national elections held throughout first quarter across India. Also one of reasons for slowdown is higher base in last quarter.

According to Controller General of Accounts, in month of May, 12.9 per cent of budget estimate of capital expenditure was spent as capital expenditure against 16.8 per cent spent as capex in same months last year. Similar is case in month of June, when 16.3 per cent of budget estimate was spent as capex against 27.8 per cent spent in same month last year. In first quarter, government’s expenditure has declined from 10.5 lakh crore in Q1 of FY24 to 9.69 lakh crore in Q1 of FY25.

Rating Agencies and ir Projections

According to rating agency ICRA, growth in Q1 is likely to be 6 per cent which will be slowest in last six quarters. On or hand, Crisil is penciling in growth at 6.8 per cent, and QuantEco is forecasting growth at 6.4 per cent. India Rating, Bank of Baroda, HDFC, and Barclays have pegged India's growth at 7.5 per cent, 7.3 per cent, 7.1 per cent, and 7.1 per cent respectively. Some rating agencies like Nomura, DBS, IDFC have projected growth in range of 6.5-6.9 per cent.

As per economists, anor potential risk to growth is moderating consumption in cities which has been reflected in sales of cars and FMCG products as well. Analysts have also pointed out muted private investment as one of reasons for slowdown in GDP growth in first quarter of FY25.

As far as inflation is concerned, inflation dipped to 3.54 per cent in July which is lowest in last five years. inflation in July moderated driven by cooling of food inflation which has consistently remained elevated for months.