India's GDP growth likely to have moderated in June quarter: Analysts

Slowdown in key drivers due to LS polls and high base effect: Analysts

Growth in gross domestic product (GDP) is likely to have moderated in the June quarter this financial year owing to a slowdown in key drivers because of the Lok Sabha elections and a high base effect, according to analysts.

This comes in the wake of the Indian economy experiencing strong growth rates of above 7.5 per cent in all four quarters in FY24.

The Reserve Bank of India (RBI) has predicted 7.1 per cent growth for Q1FY25.

The National Statistical Office (NSO) will release the Q1 growth numbers on Friday.

Rajani Sinha, chief economist, CARE Ratings, said GDP growth in Q1 was projected to slide to 6.9 per cent.

“The agricultural sector will feel the pinch of lower reservoir levels from last year’s poor monsoon and heat waves affecting productivity. Rabi production is estimated at 155.2 million tonnes, slightly below the 157.8 million tons recorded the previous year,” she added.

Besides, manufacturing growth is likely to slow as indicated by moderation in the index of industrial production data (5.1 per cent) along with growth compression in construction, as seen in deceleration in cement production (0.6 per cent).

Gaura Sengupta, chief economist, IDFC Bank, said the Q1 growth estimate was tracking sequentially lower due to moderation seen in manufacturing and government expenditure along with listed companies’ results revealing a slowdown in profit growth with a pickup in input costs.

 

“We expect GDP to grow 6.5 per cent during the quarter,” she added.

Echoing similar views, Aditi Nayar, chief economist, ICRA Ratings, said Q1 saw a temporary lull in activity in some sectors related to the parliamentary elections and sluggish government capex.

“Lower growth in volumes, combined with diminishing gains from commodity prices, weighed on the profitability of some industrial sectors. The heat wave affected footfalls in various services sectors, even as it provided a significant boost to electricity demand. On balance, we foresee transient moderation in India’s gross value added (GVA) and GDP growth in Q1 to 5.7 per cent and 6.0 per cent, respectively,” she added.

Proxy indicators like two-wheeler sales (20.7 per cent), passenger vehicles (2.8 per cent), and the consumption of petrol and diesel (3.2 per cent) have shown sequential deceleration during the quarter.

However, domestic passenger aviation has seen slight acceleration (5.5 per cent).

“On expenditure, the recent decline in the RBI’s consumer confidence data and slowing passenger vehicle sales raise concern about consumption demand. Additionally, the contraction in government expenditure, influenced by election-related restrictions in Q1, will further impede GDP growth,” added Sinha.

However, Paras Jasrai, senior economic analyst, India Ratings, said the economy would outpace the central bank’s estimate and grow 7.5 per cent in Q1 as industrial GVA was expected to be higher than Q1 FY24.

“Services GVA is expected to be the leading driver in this quarter. Trade-sector growth is expected to be above 7 per cent and financial-sector growth too is anticipated to be good. Consumption is also expected to pick up,” he added.