After its latest Monetary Policy Committee meeting, the Reserve Bank of India announced that it expects the economy to grow at 7.3 per cent for Q1, 7.2 per cent for Q2, 7.3 per cent for Q3 and 7.3 per cent for Q4 of the fiscal year ending 2025.
However, reports released by news agency Reuters and SBI Research indicate that India’s growth in the first quarter of FY25 will be lower than the RBI’s forecasts.
The government’s decision to hold back on public spending ahead of the Lok Sabha polls has had an impact on the country’s GDP growth for the first quarter this year, according to a Reuters report.
India Q1 GDP: What economists forecast?
A Reuters poll of 52 economists suggested that the GDP for the first quarter of FY25 grew at 6.9 per cent annually, which is lower than the preceding quarter where India recorded an economic growth of 7.8 per cent.
“The public spending slowdown was significant both by the centre and the states, especially on the capex front. So, there is the transitory element of growth slowdown. However…private consumption growth was better than the previous quarter and overall manufacturing and non-public services were steady,” Dhiraj Nim, an economist at ANZ told Reuters.The report further suggests that India’s economy will remain the world’s fastest growing, subject to the realisation of the median GDP forecast. Notably, the GDP results of the previous few quarters have surpassed experts’ expectations and forecasts.”We expect Q1 FY25 GDP growth to be 7%, driven mainly by the Services sector. For the full year, we maintain our GDP growth projection of 7%, with downside risks,” Sijan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers told ET Online.
A GDP forecast for the first quarter by SBI Research pegs the gross domestic product for Q1 to grow between 7.1-7.2 per cent. This, too, comes with a downward bias.
The SBI report states that India’s economy shows strong resilience even as challenges due to supply chain pressures, semiconductor shortages and a rising global freight remained.
Monsoon, too, played a significant role in helping the economy deal with these challenges, the SBI forecast further explained.
“As of August 2024, the total kharif sown area stood at 103.1 million hectares, which is 2.0 per cent higher than the corresponding period last year,” noted Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI Research.
According to the Economic Survey of 2024, India’s GDP is expected to grow between 6.5 and 7 per cent for fiscal year 2024-25.
An ET poll that presents the expectations of 14 economists kept India’s median GDP growth at 6.85 per cent for the quarter ending June, 2024.
This forecast brings the GDP down from 7.8 per cent quarter on quarter, and from 8.2 per cent in the previous year. This is a dip from the RBI’s growth prediction of 7.1 per cent for the quarter.
Economists attributed this slowdown in GDP to the elections and a slump in urban consumption.
“Urban consumption is showing signs of moderation with a slowdown in passenger vehicle sales and FMCG sales growth,” said IDFC First Bank in a note.
Rural consumption, meanwhile, has shown signs of continued growth with improving two-wheeler and tractor sales.
There is skepticism around the unpredictability of monsoon for the second half of the season as well. Growth can also be impacted by an escalation in the geopolitical landscape.
“We expect growth to moderate to 6.7% on-year in the first quarter, building in election-related impact which saw consolidated government spending slow in the period along with an uneven start to the monsoon and tepid commodity related gains. After this soft start, we expect growth to gain ground for the rest of the year, taking the full year average to 7% in FY25,” said Radhika Rao, senior economist, DBS Bank.
The International Monetary Fund, in a report released in June, maintained India’s economy at 7 per cent for FY25, a little lower than the RBI’s prediction of 7.2 per cent.
FinMin’s Stance
The Finance Ministry’s economic data tells a different story. In its monthly economic review, the ministry said that India maintained its growth momentum in the first quarter of the year.
According to the data released by the Department of Economic Affairs, India’s main economic indicators present a positive outlook. The report underscored that this growth was driven by robust domestic activity, an improvement in external trade and growing capex flows.
The Finance Ministry review report also revealed an influx in GST collections in the first four months of FY25 largely due to a widened tax base and increased economic activity.
“Going forward, the measures announced in the Union Budget FY25 for the MSMEs, manufacturing and services sectors are expected to give a big boost to the sectors,” it said.
Retail inflation was at 3.5 percent in July 2024, the lowest since September 2019, largely due to moderated food inflation.
RBI Governor Shaktikanta Das said earlier in August that food inflation remains an area of concern for the Indian economy.
Das stated that keeping a close check on food inflation is cathartic, as this would have a direct impact on headline inflation.