India's GDP growth to fall to six-quarter low of 6% in Q1 FY2025: ICRA

India's economic growth in the first quarter of the current fiscal (Q1 FY25) is expected to slide on a year-on-year (YoY) basis.

Rating firm ICRA has projected the YoY expansion of the country's GDP (gross domestic product) to moderate to a six-quarter low of 6.0% in Q1 FY2025 from 7.8% in Q4 FY2024, amidst a contraction in government capital expenditure and a dip in urban consumer confidence.

Moreover, ICRA notes that the growth in the gross value added (GVA) is estimated to ease to 5.7% in Q1 FY2025 from 6.3% in Q4 FY2024, driven by the industrial (to +6.4% from +8.4%) sector, along with a mild easing in the expansion in services (to +6.5% from +6.7%) and a slight pick-up in the agricultural GVA growth (to +1.0% from +0.6%).

"The gap between the GDP and the GVA growth is likely to moderate to ~30 basis points (bps) in Q1 FY2025 from 148 bps in the previous quarter. This is on account of an expected lower expansion in the net indirect taxes in Q1 owing to a turnaround in the subsidy outgo of the Government of India (GoI; +3.6% in Q1; -24.2% in Q4 FY2024)," ICRA added.

Lull in investment activity in Q1 FY2025

India witnessed a transient lull in investment activity in Q1 FY2025, the report added. For instance, the capital expenditure of the GoI 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% and 23%, respectively, in Q1 FY2025.

Additionally, the value of new project announcements plunged from ₹12.8 trillion in Q4 FY2024 to ₹1.2 trillion in Q1 FY2025—this was the lowest cost in any quarter in two decades (₹0.4 trillion in Q1 FY2005).

Further, the value of completed projects stood at a meagre ₹0.5 trillion in Q1 FY2025, the lowest level since Q2 FY2008 (₹0.39 trillion, barring the COVID quarters), the report said.

The report also noted that the profit margins of manufacturing companies eased in Q1 FY2025 vis-à-vis Q4 FY2024, amid an uptick in global commodity prices and the narrower deflation in input costs as reflected in the WPI-industrial raw materials (-0.3% in Q1 FY2025 vs. -2.5% in Q4 FY2024). This, along with the lower growth in manufacturing IIP volumes (to +3.8% from +4.8%), suggests that the YoY growth in manufacturing GVA is likely to have slowed in Q1 FY2025.

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA, said, "Lower volume growth combined with diminishing gains from commodity prices weighed upon the profitability of some of the industrial sectors. The heat wave also affected footfalls in various service sectors, even as it provided a significant boost to electricity demand. On balance, we foresee a transient moderation in India’s GVA and GDP growth in Q1 FY2025 to 5.7% and 6.0%, respectively."

“For the full-year FY2025, ICRA expects a back-ended pick-up in economic activity to boost the GDP and GVA growth to 6.8% and 6.5%, respectively," the economist added.