India's GDP Growth Likely To Slow In Q1 FY25 Amid Reduced Govt Spending

GDP growth is projected at 6.9 per cent YoY for this period, a dip from the RBI's estimate of 7.1 per cent and a significant drop from the 7.8 per cent growth rate recorded in the previous quarter

India's economic growth is anticipated to have slowed in the April-June quarter of the 2024/25 fiscal year, impacted by decreased government spending during the national elections and a stall in consumption. According to a Reuters poll of 52 economists, GDP growth is projected at 6.9 per cent year-on-year for this period, a dip from the central bank's estimate of 7.1 per cent and a significant drop from the 7.8 per cent growth rate recorded in the previous quarter.

Despite this slowdown, India is expected to maintain its position as the world's fastest-growing major economy. Official GDP figures for recent quarters have consistently surpassed forecasts.

For the full fiscal year, the Reserve Bank of India (RBI) projects economic growth at 7.2 per cent, down from the 8.2 per cent growth achieved in the previous year. This deceleration is attributed to reduced state spending and the RBI's stricter regulations on retail loans.

Dr. DK Srivastava, Chief Policy Advisor at EY India, remarked, "The Indian economy continues to demonstrate strong growth, driven by robust investment and consumption. The recent union budget emphasizes increasing capital expenditure and introduces new employment-linked incentives aimed at job creation. Our assessment for FY25 real GDP growth is in the range of 7 per cent to 7.2 per cent, provided the government meets its capital spending plans."

The EY report also notes that with CPI inflation remaining above the target of 4 per cent, the RBI has maintained its policy rate at 6.5 per cent for the ninth consecutive time. However, food inflation remains a significant concern.

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

Garima Kapoor, an economist at Elara Capital, stated that the uncertainty surrounding the general elections had adversely affected infrastructure and capital expenditure during the June quarter. However, she noted that economic activity is on a path to recovery.

"Our real sector indices continue to signal a steady and healthy economy, led by consumption," Kapoor added.

In the June quarter, government spending fell by 7.7 per cent year-on-year, compared to a 10.8 per cent increase during the same period the previous year.