GDP expansion is expected to moderate to a six quarter low of 6.0 per cent in Q1FY25 from 7.8 per cent in Q4FY24, amidst a contraction in Government capital expenditure and a dip in urban consumer confidence, stated a report by ICRA. It further added that the growth in the gross value added (GVA) is estimated to ease to 5.7 per cent in Q1FY25 from 6.3 per cent in Q4FY24. This will be driven by the industrial sector (to +6.4 per cent from +8.4 per cent), along with a mild easing in the expansion in services (to +6.5 per cent from +6.7 per cent) and a slight pick-up in the agricultural GVA growth (to +1.0 per cent from +0.6 per cent).
Further, per the report, the gap between the GDP and the GVA growth is estimated to moderate to around 30 bps in Q1FY25 from 148 bps in the previous quarter, 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 of India.
Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA, said, “Q1FY25 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. Further, urban consumer confidence reported a surprising downtick in the May 2024 (and July 2024) rounds of the Central Bank’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. Lower volume growth combined with diminishing gains from commodity prices weighed upon the profitability of some of the industrial sectors. The heat wave also affected footfalls in various services sectors, even as it provided a significant boost to electricity demand. On balance, we foresee a transient moderation in India’s GVA and GDP growth in Q1FY25 to 5.7 per cent and 6.0 per cent respectively.”
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 GoI’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. This is expected to catapult GDP growth back above 7 per cent in H2 FY2025,” added Aditi Nayar.
According to ICRA estimates, the industrial GVA growth is expected to record a moderation to 6.4 per cent in Q1FY25 from 8.4 per cent in Q4FY24, led by manufacturing (to +7.0 per cent from +8.9 per cent) and construction (to +4.0 per cent from +8.7 per cent). In contrast, electricity (to +11.0 per cent from +7.7 per cent), and mining and quarrying (to +6.5 per cent from +4.3 per cent) are projected to record an uptick in growth.
In terms of investment activity, India witnessed a lull in Q1FY25. The capital expenditure of the GoI 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 Q1FY25.
Furthermore, the value of new project announcements plunged from Rs 12.8 trillion in Q4FY24 to Rs 1.2 trillion in Q1FY25. This, ICRA stated, was the lowest cost in any quarter in two decades (Rs 0.4 trillion in Q1FY2005). Further, the value of completed projects stood at a meagre Rs 0.5 trillion in Q1FY25, the lowest level since Q2FY2008 (Rs 0.39 trillion, barring the Covid quarters).
The profit margins of manufacturing companies too have eased in the first quarter of FY25 vis-à-vis Q4FY24, amid an uptick in global commodity prices and the narrower deflation in input costs as reflected in the WPI-industrial raw materials. ICRA stated that this and the lower growth in manufacturing IIP volumes suggests that the YoY growth in manufacturing GVA is likely to have slowed in Q1FY25.
The YoY expansion in the services GVA too is likely to ease slightly to 6.5 per cent in Q1FY25 from 6.7 per cent in Q4FY24, amidst a decidedly mixed trend in the high frequency indicators. The performance of half of the 14 indicators tracked by ICRA saw a deterioration in Q1FY25 relative to Q4FY24, 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.
In contrast, seven indicators improved on a YoY basis in Q1FY25, largely related to public spending, transport, communication and exports. These include non-interest revenue spending of the GoI and aforesaid 22 state governments, CV sales (aided by a favourable base), service sector exports, ATF consumption, ports cargo traffic and telephone subscribers.
Amidst a decline in the output of most rabi and summer crops and a deficient rainfall seen in June 2024, ICRA expects the GVA growth of agriculture, forestry and fishing to print at 1.0 per cent in Q1FY25.