Key Takeaways
- India’s economy expanded by 6.7% in Q1 FY25, with a new normal growth of 7% expected for FY25, according to Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
- The economy grew by more than 7% in the preceding four quarters, but Q1 performance is below that due to low growth in both agriculture and services sectors.
- The RBI projected GDP growth for FY25 at 7.2% based on Q1 growth at 7.1%, but Dr Ghosh believes that GDP growth for FY25 will be a tad lower than the RBI’s estimate and 7.0% growth looks more reasonable.
Kolkata: India’s economy expanded by 6.7 per cent in the first quarter of current fiscal, and the economy grew by more than 7 per cent in the preceding four quarters, according to Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
India’s economy expanded by 6.7% in the first quarter of current fiscal.
The economy grew by more than 7% in the preceding four quarters. However, Q1 performance is below that due to low growth in both agriculture and services sectors. Agriculture grew by merely 2.0%, while services sectors grew by 7.2%.
While agriculture grew by merely 2.0%, services sectors grew by 7.2%. The nominal GDP, however, grew by 9.7% in Q1 FY25 higher than the 8.5% growth witnessed in Q1 FY24. Though the growth for Q1 has reduced to 6.7% yoy but it is still higher than the average decadal growth of 6.4% in Q1, Ghosh said.
The GVA grew by 6.8% and the gap between GDP and GVA shrank to merely 19 bps in Q1 FY25 as compared to average gap of 122 bps in preceding three quarters. We believe that this GDP-GVA gap will likely converge in FY25 as against 93 bps gap in FY24.
In q-o-q terms, real GDP always contracts in Q1. The seasonally adjusted GDP growth is always higher than the non-seasonally adjusted GDP growth for Q1, indicating the first quarter growth is better than what the non-seasonally adjusted figure shows and has a higher seasonal component.
The expenditure side or the general demand shows largely positive picture with all heads except valuables showing positive growth in Q1FY25. The private consumption grew by robust 12.4% in current prices.
The investments also register a health growth of 9.1% in current prices. But investment rate was flat at 31%. The government expenditure registered a growth of 4.1% which was slower but bearing in mind that Q1 was also the period marked by general elections.
The ongoing monsoon season, after a lacklustre performance in June has witnessed consistent heavy rains over the past two months. The Jul-Aug 2024 period is going to be one of the wettest Jul-Aug period the country has experienced in the last 30 years. Rainfall recorded during Jul-Aug 2024 currently stands at 595 mm which is approximately 12.5% above the LPA.
However, the flip side is that monsoon has been unusually heavy in southern and central India (17-18% more than the normal) but deficient in the east and north east (-12%) and just at par in north-west India (3%).
The normal monsoon bodes well for kharif crop sowing and soil moisture retention in the coming months. This will subsequently impact the food CPI on downward side.
“Bank credit growth appears to be moderating after staying strong in recent years. Going forward, we expect credit growth may grow in the range of 12-13% and deposits will grow 10-11% in FY25,” Ghosh added.
“RBI projected GDP growth for FY25 at 7.2% based on Q1 growth at 7.1%. Now with 6.7% growth in Q1, the new annual projection would be 7.1%. We believe that GDP growth for FY25 will be a tad lower than the RBI’s estimate and 7.0% growth looks more reasonable,” he stated.
