GDP growth expected to hit six-quarter low of 6% in June: ICRA

India's gross domestic product (GDP) growth is expected to moderate to 6%—a six-quarter low—during the three months ended 30 June 2024, due to a dip in government capital expenditure and urban consumer confidence, rating agency ICRA said on Thursday.

GDP grew by 7.8% in the three months ended 31 March 2024 (Q4 FY24) and by 8.2% for the year ending 31 March 2024 (FY24). The Reserve Bank of India has forecast real GDP growth of 7.2% for FY25.

Gross value added (GVA) growth is estimated to ease to 5.7% in the June quarter, from 6.3% in the March quarter, according to ICRA.

The industrial sector's growth is expected to decline to 6.4% in Q1 FY25 from 8.4% in Q4 FY24. Likewise, expansion in the services sector is forecast to ease to 6.5%, compared to 6.7% in the previous quarter.

Meanwhile, Icra expects a slight improvement in agricultural GVA growth to 1%, up from 0.6% in the previous quarter.

GVA measures the value of goods and services produced in an economy.

Unfavourable monsoon

"Q1 FY25 saw a temporary lull in activity across some sectors due to the parliamentary elections and sluggish government capex, both at the central and State levels. Furthermore, urban consumer confidence showed a surprising decline in the May 2024 (and July 2024) rounds of the central bank’s Consumer Confidence Survey. The lingering effects of last year’s unfavourable monsoon and an uneven start to the 2024 monsoon prevented a broader recovery in rural sentiment," said Aditi Nayar, chief economist, head-research and outreach at Icra.

"Lower volume growth, combined with diminishing gains from commodity prices, weighed upon the profitability of certain industrial sectors. The heatwave also affected footfall in various service sector businesses, though it boosted electricity demand," Nayar added.

ICRA foresees a transient moderation in India’s GVA and GDP growth in Q1 FY25, to 5.7% and 6%, respectively.

According to the ICRA report, seven indicators—mostly related to public spending, transport, communication, and exports—improved year-on-year in the June quarter. These include non-interest revenue spending by the central government and 22 State governments, commercial vehicle sales (aided by a favourable base), service sector exports, aviation turbine fuel consumption, cargo traffic, and telephone subscribers.

                             (By arragement with livemint.com)