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Informist, Tuesday, Jan. 7, 2025

 

NEW DELHI – The first advance estimate of GDP growth for 2024-25 (Apr-Mar) implies that the Indian economy will grow 6.7% in Oct-Mar, slower than the Reserve Bank of India's projection. As per the advance estimate released by the statistics ministry Tuesday, India's GDP growth is seen at a four-year low of 6.4% in FY25.

 

India's GDP grew 6.0% in the first six months of FY25, much slower than expectations, mainly because of slower government spending and excess rains. As a result of slower Apr-Sept growth, particularly in Jul-Sept, the central bank last month lowered its FY25 growth projection by 60 basis points to 6.6%. The RBI, which will now abandon its own FY25 growth forecast and take into consideration the first advance estimate, had projected the economy growing 6.8% in Oct-Dec and 7.2% in Jan-Mar.

 

"The lower GDP growth for FY25 has been the result of a cyclical slowdown in the Indian economy in the past three quarters," said Paras Jasrai, senior economic analyst at India Ratings and Research. Apart from the cyclical factors, Jasrai said, a strong base effect, the General Elections, weak private sector capital expenditure, and monetary and fiscal tightening were other reasons that affected growth this year. 

 

According to Aditi Nayar, chief economist at rating agency ICRA, while the implicit Oct-Mar growth projection appears reasonable, some sectors could report higher growth in the second half of the year. "For instance, the growth rates for the mining, manufacturing and THTCS (trade, hotels, transport, communication & services related to broadcasting) segments are likely to exceed the assumed rates, given the dissipation of the adverse impact of excess rains that impacted growth in Q2 FY2025 (Jul-Sept), the anticipated uptick in rural demand, and favourable base effect in some segments," Nayar said in a note. 

 

High-frequency indicators present a mixed picture of economic activity in the quarter ended December. According to HSBC, which tracked 100 indicators, growth appears to have improved since September, but remained weaker than June. Indicators such as Goods and Services Tax collections and Purchasing Managers' Index, however, show that activity slowed down even further in Oct-Dec from the previous quarter. 

 

Motilal Oswal Financial Services last week said that GDP growth could be 5.5-5.7% in Oct-Dec, much lower than the RBI's forecast for the quarter. Further, he central bank's staff wrote in their monthly "State of the Economy" article last month that Jan-Mar growth may only be 6.5%.

 

Economists also expect growth to improve in Oct-Mar on the back of an expected pick-up in government capital expenditure. Government's capital spending fell 35% on year in Apr-Jun because of the national elections, but has picked up since then. In November, the government capital expenditure was up 21% on year. 

 

The first advance estimate for GDP is based on the extrapolation of data available for the first six to nine months of the year and could undergo revisions in subsequent releases. The government will release the second advance estimate of FY25 GDP on Feb. 28, along with the Oct-Dec growth figures.  End

 

Reported by Shubham Rana

Edited by Tanima Banerjee

 

 

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