India Q1 GDP — India’s GDP growth rate slowed to 6.7% in the first quarter of FY25, marking the lowest growth in five quarters, according to government data released today. This figure is a decline from the 7.8% growth recorded in the previous quarter and compares unfavorably to the 8.2% growth seen in the same quarter last year (Q1FY24).
While the 6.7% growth aligns with estimates from many experts, it falls short of the Reserve Bank of India’s (RBI) projection of 7.2% for the quarter. The slowdown has been attributed to reduced government spending, influenced by the ongoing election activities, and the adverse effects of heatwaves during the quarter.
Industrial Production and Government Spending
Industrial production witnessed a modest increase, with growth at 5.2% compared to 4.7% in the April-June period of 2024. However, capital expenditure utilisation saw a significant decline, with the government spending only 16.3% of its budget estimates in Q1FY25, a sharp drop from 27.8% in the previous year.
Aditi Nayar, Chief Economist at ICRA, noted a substantial reduction in investment activity during Q1FY25. She highlighted that capital expenditure by the central government and 22 state governments contracted year-on-year by 35% and 23%, respectively. This reduction in public investment has been a key factor in the overall economic slowdown.
Economic Outlook
Despite the slowdown, India’s economy is still expected to maintain a growth rate of over 7% for the fourth consecutive year. Moody’s Ratings recently revised India’s growth forecast for 2024 upward to 7.2%, an increase from its earlier projection of 6.8%. The RBI, meanwhile, continues to project a 7.2% growth rate for FY25.
Economists and market analysts will be closely watching the government’s fiscal policies and spending patterns in the coming quarters, especially as the country approaches the general elections. The ability to navigate the economic challenges while sustaining growth momentum will be critical for maintaining investor confidence and economic stability.
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