India’s GDP Growth Slows to Five-Quarter Low of 6.5% in Q1 FY25: An In-Depth Analysis

Introduction: A Slowdown in Economic Momentum

India’s economic growth is anticipated to have slowed to a five-quarter low of 6.5% in the first quarter of FY25, marking a significant drop from the 8.2% growth seen in Q1 FY24 and 7.8% in Q4 FY24. 

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This decline, below the Reserve Bank of India’s (RBI) revised projection of 7.1%, has raised concerns among economists, who attribute it to a combination of factors, including muted government capital expenditure, election-related disruptions, and the impact of intense summer heat on key economic sectors.

Factors Contributing to the Decline

Economists highlight that the general momentum of domestic economic activity has moderated in Q1 FY25. According to Suman Chowdhury, Executive Director and Chief Economist at Acuité Ratings & Research, high-frequency indicators point to an adverse impact from the ongoing general elections and the excessive summer heat on certain sectors. 

Furthermore, lower industrial output and weaker corporate profitability are expected to weigh on the manufacturing sector's growth, translating to a moderation in Gross Value Added (GVA) and GDP growth to 6.0% and 6.4%, respectively.

Divergence in Growth Projections

While the RBI has maintained its full-year GDP growth forecast at 7.2%, rating agency ICRA has projected a more conservative outlook. ICRA estimates India’s GDP growth to have slowed to a six-quarter low of 6.0% in Q1 FY25, citing a contraction in government capital expenditure and a dip in urban consumer confidence as key factors.

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Outlook for the Remainder of FY25

Despite the current slowdown, there is optimism for a recovery in the latter half of the fiscal year. ICRA anticipates a back-ended pick-up in economic activity, driven by an expected increase in government capital expenditure in the July-March period. This could potentially boost GDP growth above 7% in H2 FY25.

Conclusion: Navigating Uncertain Waters 

As India navigates the economic challenges of FY25, the first quarter's slowdown serves as a reminder of the fragility of growth amidst external and internal pressures. The outlook remains cautiously optimistic, with economists forecasting a rebound in the latter half of the year, driven by increased government spending and a potential recovery in rural demand. However, the road ahead will require careful policy navigation to ensure sustained economic momentum.

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