India’s Q1FY25 GDP growth to moderate at 7% on softer govt spending, services GVA to hit 8.2%: Anand Rathi

India's gross domestic product (GDP) for the April-June quarter of fiscal 2024-25 (Q1FY25) is likely to moderate to seven per cent on softer government spending; however, the services sector growth is pegged at 8.2 per cent. According to domestic brokerage Anand Rathi, reduced government spending ahead of the general elections likely dulled growth in some services in Q1 FY25. 

‘’Financial, real estate, and professional services are expected to have done well due to strong market activity and credit growth. The trade and transport sectors show mixed signals, with some indicators improving and others moderating. Services GVA is expected to grow 8.2 per cent in Q1 FY25,'' said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers.

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Softer investment trend in Q1FY25

Growth in FY24 was investment-driven, spurred by government infrastructure projects and a real-estate upswing. However, the momentum slowed in Q1 FY25 due to pre-election restrictions. With greater budget allocations, government capex is expected to rise significantly in the coming months. 

‘’Stamp duty collections have also rebounded, suggesting buoyant real estate sales, and private capex, previously subdued, is expected to expand in FY25, supported by rising capacity utilisation and strong order books,'' said the brokerage.

Modest slowdown in industrial activity

Industrial activity grew 9.5 per cent in FY24, led by construction and manufacturing. In Q1 FY25, growth drivers are shifting toward utilities/mining, with manufacturing growth slowing. Utilities GVA is expected to rise 11.5 per cent, while construction has slowed due to election-related disruptions and the heat. 

Also Read: Moody’s Ratings upgrades India’s GDP growth forecast to 7.2% in 2024 and 6.6% in 2025

Mining remains strong, supported by greater coal production. Industry growth will benefit from government infrastructure projects and private capex, though the slowdown in global growth poses risks.

According to Sujan Hajra of Anand Rathi, scorching heat and uneven rainfall last year led to lower reservoir levels and curbed farming. Q1 FY25 growth is expected at 2.1 per cent. However, better rains and sowing conditions are expected to boost agricultural output.

India FY24 GDP 

India's GDP growth in the preceding January-March quarter of fiscal 2023-24 (Q4FY24) came in at 7.8 per cent, driven by strong growth in the manufacturing sector. The Indian economy beat D-Street estimates and grew by 8.2 per cent for the full year (FY24). Economists expect the momentum to remain strong this year.

According to data released by the National Statistical Office (NSO), the sector-wise analysis revealed that the real gross value added (GVA) grew at a rate of 7.2 per cent in 2023-24, compared to the 6.7 per cent growth observed in 2022-23. The growth propelled the Indian economy to $3.5 trillion and set the stage for achieving the $5-trillion target in the next few years.

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Construction grew 8.7 per cent in the March quarter of FY24, up from 7.4 per cent in the corresponding period of 2022-23. The agriculture sector growth decelerated to 0.6 per cent from 7.6 per cent. The electricity, gas, water supply, and other utility services segment grew 7.7 per cent during the fourth quarter from 7.3 per cent in the year-ago period.

GVA growth in the services sector -- trade, hotel, transport, communication and services related to broadcasting -- was 5.1 per cent in the fourth quarter against a growth of 7 per cent a year ago. Additionally, the government's fiscal deficit for 2023-24 stood at 5.63 per cent of the GDP.

Also Read: IMF hikes India’s FY25 GDP estimate by 20 bps to 7%; US forecast slashed amid tepid global outlook

FY25 Outlook

According to the Reserve Bank of India (RBI), the real gross domestic product (GDP) growth for 2024-25 is projected at 7.2 per cent, with Q1 at 7.1 per cent, Q2 at 7.2 per cent, Q3 at 7.3 per cent, and Q4 at 7.2 per cent.

Meanwhile, Moody's revised India's economic growth forecast upwards to 7.2 per cent for 2024 and 6.6 per cent for 2025 from its earlier estimates of 6.8 per cent and 6.4 per cent, respectively, citing strong broad-based growth.

The New York-based rating company said it recognised potentially higher growth forecasts for India if the cyclical momentum, especially for private consumption, gains more traction. In July, the International Monetary Fund (IMF) upgraded India's GDP growth for FY25 by 20 basis points to seven per cent.
 

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