GDP growth is expected to dip to 6.5 per cent in Q2FY25 from 6.7 per cent in Q1FY25 on heavy rains and weak margins offsetting the buoyancy injected by the turnaround in Government capital expenditure and healthy trends in kharif sowing, stated a report by ICRA. Further, per the findings of the report, the growth in the gross value added (GVA) is estimated to ease to 6.6 per cent in Q2 from 6.8 per cent in Q1FY25, driven by the industrial (to +5.5 per cent from +8.3 per cent) sector, amid a pick-up in the expansion in services (to +7.8 per cent from +7.2 per cent) and agricultural GVA (to +3.5 per cent from +2.0 per cent).
Based on available data for the Centre and the states’ indirect taxes and subsidies, ICRA said that the growth in net indirect taxes (in nominal terms) is estimated to rise slightly to 9.0-9.5 per cent in Q2 from 8.0 per cent in Q1. Given this, the GDP-GVA growth wedge (in real terms) is expected to remain inverted in Q2 FY2025 as well.
Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA, said, “Q2 FY2025 saw tailwinds in terms of a pick-up in capex after the Parliamentary Elections as well as healthy expansion in sowing of major kharif crops. Several sectors faced headwinds on account of heavy rainfall, which affected mining activity, electricity demand and retail footfalls, and a contraction in merchandise exports. Further, margins appear to have weakened for corporates in a variety of sectors in this quarter. As a result, we project a slight dip in India’s GVA and GDP growth in Q2 FY2025 to 6.6 per cent and 6.5 per cent, respectively.
“The benefits of the healthy monsoons lie ahead, with upbeat kharif output and replenished reservoirs likely to lead to a sustained improvement in rural sentiment. In addition, there is considerable headroom for the GoI’s capital expenditure, which needs to expand by 52 per cent in YoY terms in H2 FY2025 to meet the Budget Estimate for the full year. However, we are watchful of the impact of a slowdown in personal loan growth on private consumption as well as geopolitical developments on commodity prices and external demand. On balance, ICRA expects a back-ended pick-up in economic activity to boost the GDP and GVA growth in H2 FY2025, resulting in a full-year expansion of 7.0 per cent and 6.8 per cent, respectively,” added Aditi Nayar.
ICRA estimated the industrial GVA growth to record a broad-based moderation to 5.5 per cent in Q2, led by electricity, mining and quarrying, manufacturing, and construction.
India’s investment activity improved in Q2 FY2025 over Q1, while remaining sluggish amid slow execution of infra projects owing to surplus monsoon rains. The GoI’s capital expenditure reverted to a YoY expansion of 10.3 per cent YoY in Q2FY25 (Rs 2.3 trillion), following the 35.0 per cent contraction seen in Q1FY25. While the combined capital outlay and net lending of the 22 state governments (excluding Arunachal Pradesh, Gujarat, Goa, Jharkhand, Manipur and Odisha) rose by 2.1 per cent YoY in Q2, the pace of expansion remained muted.
Additionally, ICRA said that new project announcements witnessed a healthy rebound to Rs 6.7 trillion in Q2 from multi-quarter low of Rs 2.2 trillion in Q1. This was in sync with the historical trends, wherein new proposals picked up sharply in Q2 after the lull seen during the Parliamentary Elections.
Meanwhile ICRA estimated the YoY expansion in the services GVA to rise to 7.8 per cent in Q2, amidst a mixed trend in the high frequency indicators. Supported by the favourable trends for kharif sowing and early estimates depicting a 5.7 per cent growth in kharif foodgrain output, as well as a low base, ICRA said that the GVA growth of agriculture, forestry and fishing is expected to accelerate to around 3.5 per cent in Q2 FY25.
