India’s growth slowed to a five-quarter low of 6.8% in Q1FY25: MC Poll

“Manufacturing growth is likely to moderate as indicated by the moderation in IIP (Index of Industrial Production) data and corporate profitability.  Construction sector growth is likely to moderate as it feels the impact of the election period,” said Rajani Sinha, chief economist, CareEdge. The rating agency forecasts 6.9 percent growth in the first quarter.

Experts note that the contraction in government expenditure also influenced growth in the first quarter.

"We expect growth to have slowed in Q1, driven by a decline in company profits. On the expenditure side, the slowdown in government capital spending, likely linked to upcoming elections, has also contributed to this weakness," said Indranil Pan, chief economist, Yes Bank.

Capex utilisation was lower at 16.3 percent of the budget estimates in the first quarter of FY25, compared to 27.8 percent during the corresponding period in the previous fiscal.

“India witnessed a transient lull in investment activity in Q1FY25. For instance, the capital expenditure of the government of India 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 percent and 23 percent, respectively, in Q1 FY25,” said Aditi Nayar, chief economist, Icra, which projects growth to decline to a six-quarter low of 6 percent.

Low reservoir levels are likely to keep agriculture growth contained in the first quarter, while services and trade may see a boost in activity.

“There is expected to be a pickup in YoY growth in trade, and the hotels and transport sectors. The financial services are also expected to register a strong growth. Both of them would be the key driving factors for growth in Q1FY25,” said Paras Jasrai, senior analyst, India Ratings and Research.

The economists noted that the gap between the gross value added (GVA) and the GDP growth is likely to persist, with GVA growth to be lower around 6.4-6.6 percent. In FY24, GVA growth was a percentage point below GDP growth, owing to a 19.1 percent increase in net taxes.

The Reserve Bank of India (RBI) predicts growth to stay around 7.1 percent in the first quarter and rise to 7.2 percent for the full year.

Inflation to stay contained, growth to remain around 7%

The economists in the MC poll predicted growth to be slightly lower at 7 percent in FY25, with forecasts ranging from 6.5-7.5 percent.

The Indian economy grew 8.2 percent in the previous fiscal, which led to a spate of revisions from international agencies, economists and the central bank.

The Economic Survey predicts growth to be in the 6.5-7 percent range.

“In the subsequent quarters, the agricultural sector is expected to see improved growth due to a good monsoon, despite ongoing distributional challenges. Additionally, an increase in the government’s capital expenditure in the upcoming quarters will support overall growth,” Sinha from CareEdge said.

On the inflation front, the MC Poll median was in line with the RBI's MPC (Monetary Policy Committee) estimate of 4.5 percent.

Inflation eased to a 59-month low of 3.5 percent in July, compared with 5.1 percent in the previous month.

“We expect inflation to moderate and print around the 4-percent mark for the remaining months in FY25. The key factors attributing to moderation in headline inflation are the scope for a big correction in vegetable inflation in H2FY25, and the potential for moderating inflation in sugar, spices and pulses. There are a few segments, such as telecom, electricity and select services, which could see higher inflation,” said Namrata Mittal, chief economist, SBI Mutual Fund.

Weather remains a key monitorable, according to economists. Despite normal monsoon, excess rainfall in a few areas and deficient rainfall in seven states could have a bearing on food production.