Economists predict lower GDP in first quarter of FY25

NEW DELHI: India’s economic growth likely slowed in the April-June quarter, impacted by reduced government spending during the national elections and a decline in consumer spending.

A poll conducted by a wire agency among 52 economists forecasts GDP growth at 6.9 per cent year-on-year for the first quarter of the 2024/25 fiscal year, which ended in June. This is lower than the Reserve Bank of India’s (RBI) estimate of 7.1 per cent and the 7.8 per cent growth recorded in the previous quarter.

If this projection holds, India will maintain its position as the world’s fastest-growing major economy. Notably, official GDP figures for recent quarters have consistently surpassed expectations.

Down from previous year

For the entire fiscal year, the RBI predicts a 7.2 per cent growth rate, a slowdown from the 8.2 per cent growth achieved in the previous year. This deceleration is attributed to reduced state spending and stricter rules on retail loans imposed by the central bank.

The government is scheduled to release the official GDP data for the April-June quarter on Friday at 1200 GMT.

Garima Kapoor, an economist at Elara Capital, noted that uncertainty surrounding the general elections negatively impacted infrastructure and capital expenditure during the June quarter.

However, she observed signs of economic recovery. “Our real sector indices continue to indicate a stable and healthy economy, driven by consumption,” she added.

Kapoor also highlighted that government spending during the June quarter fell by 7.7 per cent year-on-year, a sharp contrast to the 10.8 per cent increase during the same period last year.

Axis Capital, a Mumbai-based brokerage, echoed these concerns, stating that political uncertainty affected both investment and consumption in the April-June period. Following setbacks in the general election, Prime Minister Narendra Modi responded by increasing spending,

Annual budget

introducing a $576 billion annual budget that included substantial allocations for affordable housing and rural jobs to stimulate economic growth.

Economists are optimistic that favorable rainfall this year will boost agricultural output, rural incomes, and consumer demand. This optimism is supported by rising sales of two-wheelers and tractors in July.

Axis Capital cautioned, “While the current weakness can be attributed to election-related uncertainty and reduced government spending if growth momentum does not pick up in the coming months, the annual growth forecast of 7% could be at risk.”

However, there are concerns that a tight monetary policy could also hinder growth. Earlier this month, the RBI held its policy rate steady, emphasizing the importance of sustainably reducing inflation toward its medium-term target of 4 per cent.

Despite robust growth compared to other economies, India faces challenges in job creation and achieving more inclusive economic growth. These issues have suppressed wages and consumption among lower-income households, as well as private sector investment.

A recent World Bank report highlighted these challenges, stating, “It will take India 75 years to reach one-quarter of the US per capita income. With growing demographic, ecological, and geopolitical pressures, there is no room for error.”