India’s economic growth is expected to slow to a six-quarter low of 6% in the April-June quarter, driven by a reduction in government capital expenditure and weakening urban consumer demand, according to a projection by ICRA on Thursday.
For the full fiscal year 2024-25, ICRA anticipates GDP growth of 6.8%, a decrease from the 8.2% recorded in 2023-24.
"ICRA projects year-on-year GDP growth to moderate to 6% in Q1 FY2025, down from 7.8% in Q4 FY2024, due to a contraction in government capital expenditure and a dip in urban consumer confidence," the rating agency said in a statement.
Official data on economic growth for the June quarter is set to be released by the Ministry of Statistics and Programme Implementation (MoSPI) on 30 August.
In the same quarter of 2023-24, growth stood at 8.2%.
ICRA Chief Economist Aditi Nayar noted that the June quarter of the current fiscal saw a temporary lull in certain sectors, attributed to Parliamentary elections and reduced government capital expenditure at both central and state levels.
Nayar also highlighted a surprising decline in urban consumer confidence, as indicated by the Reserve Bank of India’s Consumer Confidence Survey. Additionally, the lingering effects of last year’s unfavourable monsoon and a patchy start to the 2024 monsoon have hampered a broader improvement in rural sentiment.
"Lower volume growth, coupled with shrinking gains from commodity prices, has impacted the profitability of some industrial sectors," she said. "While the heatwave boosted electricity demand, it also reduced footfall in various service sectors. Overall, we expect a temporary slowdown in India’s GVA and GDP growth in Q1 FY25 to 5.7% and 6%, respectively."
Looking ahead to the full year, ICRA anticipates a recovery in economic activity, predicting GDP and GVA growth of 6.8% and 6.5% respectively for FY2025.
Nayar added that there is significant potential for an increase in the Government of India’s capital expenditure, which needs to grow by 39% year-on-year in the July-March period of FY2025 to meet the Budget estimate for the full year. This is expected to drive GDP growth above 7% in the second half of FY2025.
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