New Delhi: India’s economic growth is likely to decline to 6 per cent in April-June 2024 quarter, the slowest pace of expansion in six quarters as the government’s capital expenditure (capex) dipped due to the Lok Sabha elections, and urban consumer confidence remained low, rating agency ICRA said on Thursday.
The country’s gross domestic product (GDP) expanded by a robust 8.2 per cent in the financial year 2023-24. The real GDP growth stood at 7.8 per cent in the January-March quarter.
ICRA’s GDP forecast for the April-June quarter (Q1FY25) as well as the financial year (FY25) is sharply lower than the central bank’s estimate.
In its monetary policy review earlier this month, the Reserve Bank of India (RBI) pegged Q1 growth projection at 7.1 per cent, and at 7.2 per cent for FY25. ICRA has pegged FY25 GDP growth at 6.8 per cent.
“Q1FY25 saw a temporary lull in activity in some sectors related to the Parliamentary elections and sluggish government capex, both for the Centre and the states,” said Aditi Nayar, Chief Economist, ICRA.
The centre’s capital expenditure dipped by 35 per cent in Q1 year-on-year, while capital expenditure of 22 major states declined by 23 per cent during the period.
The value of new project announcements plunged from Rs 12.8 lakh crore in January-March quarter to Rs 1.2 lakh crore in April-June period, the lowest since 2005. The value of completed projects during the first quarter of 2024-25 stood at a meagre Rs 50,000 crore, the lowest since Q2 FY2008, barring the Covid-period.
According to ICRA, another major reason for the decline in GDP growth during Q1 would be lower urban consumer confidence. “Urban consumer confidence reported a surprising downtick in the May and July 2024 rounds of the RBI’s Consumer Confidence Survey, while the lingering impact of last year’s unfavourable monsoon and an uneven start to the 2024 monsoon prevented a broader improvement in rural sentiment,” Nayar 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 services sectors, even as it provided a significant boost to electricity demand,” she added.
The growth in the gross value added (GVA) is estimated to decline to 5.7 per cent in Q1 FY2025 from 6.3 per cent in Q4 FY2024. A sharp deceleration is expected in the industrial sector falling from 8.4 per cent in January-March quarter to 6.4 per cent in April-June period. Services GVA is estimated to decline marginally from 6.7 per cent in to 6.5 per cent in Q1, ICRA said.