Nomura Lowers India's FY25 Growth Forecast. Know Why. All Details Here

The downgrade comes after official data released on Friday revealed that India's GDP grew at a slower pace than anticipated during the April-June quarter

Nomura has revised its economic growth forecast for India in FY25, lowering it from 6.9 per cent to 6.7 per cent year-on-year (YoY). The downgrade comes after official data released on Friday revealed that India's Gross Domestic Product (GDP) grew at a slower pace than anticipated during the April-June quarter.

India's GDP increased by 6.7 per cent in the first quarter, falling short of the 6.9 per cent growth predicted by a Reuters poll and significantly lower than the 7.8 per cent growth recorded in the previous quarter. The slower growth was largely attributed to a decline in government spending amid national elections, which weighed on the economy.

The agriculture sector saw growth of just 2 per cent, a steep decline from the 3.7 per cent recorded in the same quarter of the previous fiscal year, according to data from the National Statistical Office (NSO). In contrast, the manufacturing sector posted a stronger performance, with growth accelerating to 7 per cent in the first quarter, up from 5 per cent in the corresponding period last year. The previous GDP low was 6.2 per cent in the January-March 2023 quarter.

India's Real GDP growth in Q1 of FY24-25 was estimated at 6.7 per cent, down from 8.2 per cent in Q1 of the previous fiscal year. Meanwhile, Nominal GDP growth picked up, reaching 9.7 per cent, compared to 8.5 per cent in the same period last year.

"Overall, Q2 GDP data are weaker than expected, although the role of transitory factors like elections versus more persistent factors like slowing profit growth is still unclear," Nomura analysts said in a note dated August 30.

Despite the current slowdown, economists anticipate a temporary downturn, with expectations of easing inflation and a rebound in government spending likely to support growth in the coming months. However, Nomura warned that "Even as government spending revives, lower corporate profit growth and a moderation in credit growth are likely to persist as growth drags."

In contrast to Nomura's revision, both Goldman Sachs and J.P. Morgan maintained their FY25 GDP growth forecast for India at 6.5 per cent.

The Reserve Bank of India (RBI), in its latest Monetary Policy Committee (MPC) meeting, kept its real GDP forecast for FY25 at 7.2 per cent, with quarterly adjustments: 7.2 per cent in Q1, Q2, and Q4, and 7.3 per cent in Q3. The RBI also projected real GDP growth for Q1 FY26 at 7.2 per cent.