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

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

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

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

According to the Controller General of Accounts, in the month of May, 12.9 per cent of the budget estimate of capital expenditure was spent as capital expenditure against 16.8 per cent spent as capex in the same months last year. Similar is the case in the month of June, when 16.3 per cent of budget estimate was spent as capex against 27.8 per cent spent in the same month last year. In the first quarter, the 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 Their Projections

According to rating agency ICRA, the growth in Q1 is likely to be 6 per cent which will be the slowest in the last six quarters. On the other 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 the range of 6.5-6.9 per cent.

As per the economists, another potential risk to the 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 the reasons for the slowdown in GDP growth in the first quarter of FY25.

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