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Informist, Thursday, Jan. 9, 2025

NEW DELHI – The government's estimate that GDP growth may fall to 6.4% in 2024-25 (Apr-Mar) faces several downside risks, according to Systematix Institutional Equities, which has argued that the assumptions underpinning the numbers appear "untenable".

"NSO's (National Statistics Office) advance estimates for FY25 assume a noticeable revival in both real and nominal demand in 2H (Oct-Mar) along with pick-up in inflation and output. Given the frail performance of both corporate and household sectors, elevated cost of living and weak income situation the CSO's (Central Statistical Office) assumption appears untenable," analysts from Systematix said in a report Wednesday.

The statistics ministry's first advance estimate of GDP for the current financial year implies that real GDP growth in the second half of the year will rise to 6.7%, with nominal growth seen at 10.5%. In Apr-Sept, real and nominal growth stood at 6.0% and 8.9%, respectively. Quarterly GDP data for Oct-Dec will be released next month when the statistics ministry will also revise its advance estimate.

According to Systematix, the risks to the first advance estimate of 6.4% range from "languid" corporate performance over the past three quarters, reflecting the "rapidly slowing urban and muted rural demand", to the "heightened tax incidence" on households as the government consolidates its finances, hurting demand.

"The tightening credit situation is impacting leveraged consumption. In addition, the correction in stock prices will have an adverse wealth effect. Both will impact urban consumption," Systematix analysts argued.

Pressure has been rising on the Reserve Bank of India to reduce interest rates, with the policy repo rate left unchanged at 6.50% for almost two years. While economists think the Monetary Policy Committee may finally deliver a 25-basis-point reduction at its meeting early next month, interest rate changes normally have an impact on growth with a lag of several months.

Specifically on nominal growth, Systematix said the first advance estimate implies an 18.4% year-on-year increase in net indirect tax collections in the second half of FY25, more than double the 8% rise witnessed in Apr-Sept.

"GoI (Government of India) finances show that NIT (net indirect tax collections) grew by just 7.2% FYTD25 (Apr-Nov) with indirect tax (growth) slowing to 9.2% and subsidies rising by 15%. Thus, an 18.4% spike up in incidence of NIT can come at the cost of further impairment of household disposable income, which is inconsistent with the projected acceleration in PFCE (private final consumption expenditure) growth of 7.8% in 2H (Oct-Mar) vs 6.7% in 1H (Apr-Sept)," the brokerage said.  End

Reported by Siddharth Upasani

Edited by Saji George Titus

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