India’s Q1 GDP expansion decelerated to 6.7% in the initial quarter of FY25, representing the least growth in five quarters, a decline from the previous quarter’s 7.8%. The number also shows a less favorable comparison to the 8.2% increase recorded in Q1FY24, as indicated by government data released on August 30.
Reduced govt spending causes growth to fall short of RBI’s forecast
The 6.7% increase is mostly consistent with experts’ predictions but is below the Reserve Bank of India’s (RBI) forecast of 7.2% for the same period.
The decrease in pace is believed to be caused by a decrease in government expenditure, possibly due to election-related activities and the adverse impacts of heatwaves in the period.
There was a slight rise in industrial production, with a growth rate of 5.2% in the April-June period of 2024, up from 4.7%. Nonetheless, there was a substantial decrease in the utilization of capital expenditure, as the government only used 16.3% of its budget estimates in Q1FY25, down from 27.8% in the preceding year.
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During the first quarter of FY25, a significant decrease in investment activity was pointed out by Aditi Nayar, the Chief Economist at Icra, as capital expenditure by the central government and 22 state governments saw a 35% and 23% year-on-year contraction, respectively.
Indian economy still expected to maintain over 7% annual growth rate
Even with the slowdown, India’s economy is projected to continue growing at a rate exceeding 7% for the fourth year in a row.
Moody’s Ratings recently increased their forecast for India’s growth in 2024 to 7.2% from 6.8%, while the RBI is sticking to its 7.2% growth forecast for FY25.
