The GDP growth rate for Q1FY25 came in at 6.7%; the growth was largely in line with street estimates. The GDP growth was expected to be marginally subdued due to a high base effect and the general elections leading to low government expenditure during the period. The GDP growth rates for the preceding quarter and the year ago period were 7.8% and 8.2% respectively.
As per NSO data on the Gross Value Added (GVA), the growth rate for Q1 was 6.8%. As the growth in net taxes normalised, so did the gap between GDP and GVA growth. Agriculture & Allied activities witnessed a slowdown as compared to the year ago period. The late onset of monsoon across the nation affected the agri sector. The agri growth is expected to rebound in the second quarter. The industrial sector growth continued to be robust. The components of industrial growth that showed a marked improvement in performance were Electricity and Construction. The supportive government policies are expected to sustain the momentum seen in industrial activities.
The contribution of the services sector remained sub-par as compared to the year ago period. A high base in services growth too has an impact on the sectoral growth. Within the services sector, the growth for Public Administration, Defence and Other services held up well. The drag in growth was seen in Trade, Hotels, Transport, Communications & Broadcasting Services.
As per the use-based classification, the growth was mainly driven by gross fixed capital formation and private consumption. The rise in exports was a healthy surprise; the growth in exports outpaced that of imports. The current set of GFCF numbers indicate that private capex is gradually reviving. The growth for Gross Fixed Capital Formation, Private Consumption and Government Consumption is estimated at 7.5%, 7.4% and -0.2% respectively.
Going ahead the growth is expected to be well supported by government capex in the current year. The turnaround seen in the private capex during FY24 needs to sustain to maintain the headline GDP run rate. The fiscal glide path may gradually restrict the government’s ability to do incremental capex. The manufacturing focused government policies and the global supply chains inclined towards China+1 also bode well for the domestic corporates. The agriculture and allied activities witnessed a sluggish growth in FY24 owing to weather related vagaries. With indications of a normal monsoon, the headline numbers may receive support from agricultural activity as well. A revival in rural demand would be critical for consumption driven industries.
At the current juncture, growth estimates for FY25 are pegged in the range of 6.5% to 7%. The continuity of the political dispensation and thus of the economic policies instils some confidence that the forecasted growth rates would be achieved. The normalisation of inflationary pressures and increased probability of monetary policy turning dovish during the course of the year have further improved the growth outlook. The key risks to growth outlook are 1) persistent inflationary pressures, 2) flare-up in geopolitical risks and 3) global economy experiencing a hard-landing.
