India’s Credit Rating Agency, ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) has projected India’s Gross Domestic Product (GDP) to moderate six quarter low of 6% in 1st Quarter (Q1: April-June) of Financial Year 2024-25(FY 25) from 7.8% in Q4 of FY24.
- This decrease in India’s GDP is mainly due to reduction in government capital expenditure and a decline in urban consumer demand.
- Further, it has estimated that India’s GDP and Gross Value Added (GVA) growth for full FY25 will be 6.8% and 6.5%, respectively.
Key Projections:
i.According to ICRA, the capital expenditure of Government of India (GoI) is likely to expand by 39% Year-on-Year (Y-o-Y) in the July to March FY25 period to meet the full year’s budget estimate.
- This will further give boost to the GDP growth above 7% in the 2nd Half of FY25 (H2 FY25).
ii.The growth in GVA is estimated to decrease from 6.3% (Q4FY24) to 5.7% (Q1 FY25).
- This is due to lower growth in industrial (from +8.4% to +6.4%) and services (from +6.7% to +6.5%) sectors, and marginal increase in the agricultural GVA growth (from +0.6% to 1.0%).
iii.The gap between GDP and GVA growth is likely to moderate to around 30 basis points (bps) in Q1FY25 from 148 bps in Q4FY24.
- This is due to lower expansion in the net indirect taxes in Q1 FY25 which is because of decrease in subsidy outgo of the GoI i.e. +3.6% in Q1; -24.2% in Q4 FY24.
iv.It has projected that industrial GVA growth to be 6.4% in Q1FY25.
- This is led by other sub-sectors such as: manufacturing (from +8.9% to +7.0%), electricity (from +7.7% to +11.0%), construction (from +8.7% to +4.0%) and mining and quarrying (from +4.3% to +6.5%).
v.ICRA observed deterioration in the performance of half of the 14 indicators monitored by it, in Q1FY25compared to Q4FY24, which can be partly due to the heatwave conditions that slowed down the mobility/travel.
- Some of these indicators are: air cargo, traffic, rail freight, consumption of petrol and diesel, domestic airlines’ passenger traffic, among others.
- While, other 7 indicators improved on Y-o-Y basis in Q1FY25, mainly related to public spending, transport, communication and exports.
- Some of these include: non-interest revenue spending of the GoI and 22 state governments, services sector export, Aviation Turbine Fuel (ATF) consumption, ports cargo traffic and telephone subscribers.
vi.ICRA estimated that the GVA growth of agriculture, forestry and fishing to be at 1.0% in Q1FY25.
Reasons:
i.ICRA highlighted that the capital expenditure of the GoI and 22 state governments registered a Y-o-Y contraction of 35% and 23% respectively, in Q1FY25.
ii.Also, the value of new project announcements decreased from Rs 12.8 lakh crore in Q4FY24 to Rs 1.2 lakh crore in Q1FY25, which was the lowest cost in any quarter in last 20 years i.e. Rs 40,000 crore in Q1FY05 (2004-05).
- Further, the value of completed projects stood at Rs 50,000 crore in Q1FY25, the lowest since Q2FY08 (2007-08).
About ICRA Limited:
Managing Director (MD) and Group Chief Executive Officer (CEO)- Ramanth Krishnan
Headquarters– Gurugram, Haryana
Established– 1991
