New Delhi: Indicators of corporate performance in the first quarter of the current financial year point to moderation in sales growth of manufacturing companies, which is likely drag the overall GDP growth of the country to around 7 per cent in April-June quarter, sharply down from 8.2 per cent expansion recorded in the financial year ended March 2024, SBI Research said on Monday.
As per State Bank of India’s ‘Nowcasting Model’, the gross domestic product (GDP) growth for Q1 of the current financial year would be 7 to 7.1 per cent, and gross value added (GVA) at 6.7-6.8 per cent with a downward bias.
SBI’s ‘Nowcasting Model’ is based on 41 high frequency indicators associated with industry activity, service activity, and global economy. The model uses the dynamic factor model to estimate the common or representative or latent factor of all the 41 high frequency indicators from Q4 of FY13 to Q1 of FY25.
SBI Research’s projection for the Q1 GDP growth is in line with the central bank’s projection. In its monetary policy review earlier this month, the Reserve Bank of India (RBI) pegged Q1 growth projection at 7.1%.
Ratings agency ICRA recently said that the Q1 growth may slump to 6%, the slowest pace of expansion in six quarters. Decline in the government’s capital expenditure (capex) due to the Lok Sabha elections, according to ICRA, is among the biggest factors in slower GDP growth in the first three months of the current financial year.
The Ministry of Statistics & Programme Implementation is scheduled to release the official data on Q1 GDP growth at the end of this month.
According to SBI Research, on the positive side the agriculture sector growth is likely to accelerate to 4.5 to 5 per cent during the quarter under review helped by good monsoon rains.
After a lackluster performance in June, southwest monsoon picked up from early July, closing the deficit. As on August 25, 2024, the cumulative rainfall was 5 per cent above the long period average (LPA) as against 7 per cent deficit during the same period last year.
As on August 20, 2024 the total Kharif sown area stood at 103.1 million hectares (94 per cent of full season normal area), which is 2 per cent higher than the corresponding period last year. “We expect agricultural growth to rebound to 4.5-5 per cent in FY25 adding around 30 bps over RBI forecast,” SBI Research said.
The research note authored by Soumya Kanti Ghosh, SBI Group Chief Economic Advisor and a Member of the 16th Finance Commission, underlined that the “Indian economy remained resilient despite headwinds from supply chain pressures due to the rise in global freight and container costs, and semiconductor shortages.”
“The global economic growth outlook remains uncertain but the softening inflation has made space for monetary policy easing,” it said.
The Reserve Bank of India (RBI) has kept key policy interest rates unchanged since February 2023 reiterating its commitment to bring inflation down to 4 per cent on a sustainable basis.
As per data released by the Ministry of Statistics & Programme Implementation recently, the annual retail inflation declined to 3.54 per cent in July, coming below the RBI’s medium-term target of 4 per cent for the first time in nearly 5 years.
US Federal Reserve Chairman Jerome Powell’s recent comment that “the time has come” to cut interest rates, has boosted hopes for early monetary policy easing globally, including India.