India's Q1FY25 GDP growth decelerates to 5-quarter low at 6.7%
India's gross domestic product (GDP) growth for the first quarter (April-June) of the current financial year 2024-25 has dipped to a five-quarter low of 6.7%, government data released on Friday has revealed. This is a significant decline from the previous quarter's 7.8% growth rate and also falls short of the Reserve Bank of India (RBI)'s projected figure of 7.2%. Moroever, the Q1FY25 economic growth is quite low in comparison to Q1FY24's robust 8.2% jump in GDP.
Factors contributing to economic slowdown
Per reports, the economic slowdown is primarily attributed to a reduction in government spending, possibly due to election activities and the adverse effects of heatwaves during this quarter. On the contrary, industrial production experienced a slight rise with a 5.2% growth compared to 4.7% in the April-June period of FY24. However, capital expenditure utilization saw a substantial drop as the government spent only 16.3% of its budget estimates in Q1FY25, down from 27.8% in the same period last year.
Investment activity and economic outlook
Meanwhile, Aditi Nayar, chief economist at ICRA, has pointed out a significant decrease in investment activity during Q1FY25. She noted the capital expenditure by the Centre and 22 state governments showed a year-on-year contraction of 35% and 23%, respectively. Despite these challenges, India's economy is still projected to maintain an above 7% growth rate for the fourth straight year. Furthermore, Moody's Ratings revised the country's 2024 growth projection to 7.2%, up from its initial estimate of 6.8%.
India outpaces China despite economic slowdown
Despite the Q1FY25 economic deceleration, India continues to be the fastest-growing major economy, surpassing China's 4.7% GDP growth in the same period. Moreover, economists predict this slowdown will be temporary as easing inflation and increased government spending are expected to stimulate growth in the coming months. Separately, the gross value added (GVA)—which economists consider a more dependable measure of growth—rose by 6.8% in April-June compared to last year, also marking an improvement from 6.3% in the preceding quarter.
Sector-wise performance and consumer spending
The manufacturing sector, accounting for approximately 17% of India's GDP, witnessed a 7% year-on-year growth in the April-June quarter. This is a slight decrease from the preceding quarter's growth of 8.9%. During this period, the agricultural output also rose by 2% year-on-year, which is an improvement from the previous quarter's growth of 1.1%. Consumer spending, which makes up about 60% of the GDP, increased 7.4% in April-June from a year earlier compared to just 4% in the previous quarter.
