With economic growth slowing to a seven-quarter low of 5.4% in the second quarter of the fiscal, most analysts have highlighted that it may be an uphill challenge to reach 7% growth this fiscal year. While growth is seen to revive in the second half of the fiscal, they expect the economy to clock a growth of about 6.5% to 6.8% in the full fiscal year 2024-25.
Chief economic advisor V Anantha Nageswaran, however, said that the 5.4% is a one-off number and not the beginning of a trend, pointing out to improved rural demand and growing order books of companies. “There is every reason to believe this 5.4% number is just a one-off number,” he underlined and said some of this could be due to moderation in urban demand. However, there is no concerns over a continued moderation in urban demand.
He also stressed that it is too early to extrapolate too much on the full fiscal GDP growth figure pointing out these are just first estimates. “We will take a look at the possibilities on the final outcome in terms of the GDP estimates for the full year. These are first estimates. The first cut of the full year growth estimates for FY25 will be available in January… It is too soon to say that even 6.5% number is in danger. One should not extrapolate too much,” he stressed.
The Economic Survey had pegged GDP growth for FY25 in a range of 6.5% to 7%.
As per official data released on November 29, real GDP is estimated to have grown by 5.4% in the July to September 2024 quarter while real gross value added grew by 5.6% in the same period. GDP growth was much higher at 6.7% in the first quarter of the fiscal and at 8.1% in the second quarter of FY24. The economy is seen to have grown by 6% in the first half of the fiscal and analysts point out that GDP growth will have to be 7.9% in the second half of the fiscal for the full year growth to be 7%.
What analysts say on FY25 GDP estimate
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank noted that the sharply lower than expected GDP figures reflects the highly disappointing corporate earnings data. The manufacturing sector appears to have taken the maximum beating. “The high frequency data suggests that festive linked revival in activity may provide a marginally better 2H growth figure but overall GDP growth for FY25 is going to be around 100bps lower than RBI’s estimate of 7.2%,” she said.
Madan Sabnavis, Chief Economist, Bank of Baroda said he expects growth for year to average 6.6% to 6.8%. “Going forward we see steady growth in second half. Consumption already recovering with festival rural spending and wedding season. Government will expedite budget spending and hence will be picking up. Third, investment shows positive signs as intentions higher than last year post July,” he said.
The slowdown in growth was largely due to a sharp deceleration in expansion in manufacturing and mining and quarrying although all sectors barring agriculture and services sectors posted slower growth in the second quarter as compared to the previous quarter. Growth in mining and quarrying contracted by 0.1% in the second quarter of the current fiscal as against an 11.1% expansion in the second quarter of last fiscal. Similarly, the growth in manufacturing slipped to 2.2% in the second quarter of the fiscal from 14.3% a year ago.
Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers said the agency is not revising its full-year growth projection of 7% but will closely monitor the momentum going forward.
“We believe that growth in the second half (H2) will be driven by continued strength in agriculture, which is expected to boost rural demand further and increase in capital expenditure (capex) from both central and state governments . Additionally, moderation in the industrial sector’s base should support stronger growth, especially with the complete monsoon season,” he said, adding that certain headwinds could impact the outlook. Risks include the potential impact of Chinese imports and policy uncertainties following the US elections, both of which could dampen a revival in private sector investment, he said.
Consumption and investments in slow lane
From the demand side both consumption and investment demand slowed down in the second quarter of the fiscal. While private consumption growth slowed to 6% in the quarter while government consumption expenditure was 4.4%. Investments grew by just 5.4% in the second quarter versus 7.5% in the previous quarter.
“The main indicators of the consumption so far indicate that the skewness in the consumption growth is correcting somewhat with the pick-up in rural real wages, two-wheeler sales, etc. The quarterly results of the FMCG companies also point to a sustained recovery in rural demand which is favourable both for consumption as well as GDP growth,” noted Devendra Kumar Pant, Chief Economist at India Ratings and Research.
However, Nageswaran underlined that capex growth could see an uptick in the remaining four months of the fiscal year. “Capex slowdown was across all levels of the government. We need to examine the impediments that stand in the way of capex. Some of it would be due to excessive rainfall and uncertainties due to the election season,” he said.
As per CGA data, the Centre’s capital expenditure between April and October 2024 was Rs 4.66 lakh crore, amounting to 42% of the full year target of Rs 11.1 lakh crore.
