Economists anticipate that the slowdown will be short-lived, as easing inflation and increased government spending are expected to bolster growth in the coming months.
The Gross Value Added (GVA), considered by economists to be a more reliable measure of growth, rose by 6.8% in April-June compared to the previous year, an improvement from the 6.3% recorded in the preceding quarter.
India Q1 GDP Data: Key Points
- The manufacturing sector, which accounts for approximately 17% of India’s GDP, exhibited a 7% year-on-year growth in the April-June quarter, down from the 8.9% expansion witnessed in the previous quarter.
- During the same period, agricultural output increased by 2% year on year, marking an improvement from the 1.1% growth in the preceding quarter.
- The abundant rainfall experienced this year is anticipated to bolster agricultural production, rural incomes, and consumer demand, a trend already evident in the heightened sales of two-wheelers and tractors in July.
- The only relatively low growth sector is trade, hotels, transport and communications, an employment intensive sector, which shows a growth of 5.7% as compared to the overall non-agricultural growth of 7.6%.
- Consumer spending, which constitutes about 60% of GDP, rose 7.4% in April-June from a year earlier, compared to 4% in the previous quarter. Capital investments also rose by 7.4% compared to 6.5% in the previous quarter.
- Economic experts predict that a decrease in retail inflation may prompt the central bank to lower its policy rate later this year. Such a move has the potential to boost household spending and support private investments, further contributing to the country’s economic growth.
- In the April-June quarter, government expenditure experienced a 0.2% year-on-year decrease in real terms, contrasting with the 0.9% growth observed in the preceding quarter.
Dharmakirti Joshi, Chief Economist, CRISIL says that although overall private consumption shows mixed trends in the first quarter, initial signs of pick up in rural consumption are visible. We expect private consumption demand to improve this year over an anemic growth of 4% in fiscal 2024.
The low-base effect apart, improvement in agricultural growth and lower food inflation will augur well for private consumption, particularly in rural areas. Higher agricultural growth will augment income and lower food inflation will improve discretionary spending ability, he believes.
“In addition, government spending on employment and asset generating schemes (PM Awaas Yojna for urban and rural areas) can provide additional support to consumption growth in rest of the fiscal. That said, unlike last fiscal, rural consumption is expected to outpace urban, as higher interest rates impact urban areas more. The signs of this are visible in the Reserve Bank of India’s (RBI) consumer confidence survey released in August,” he said.
Upasna Bhardwaj, chief economist at Mumbai-based Kotak Mahindra Bank told Reuters, “We retain our GDP growth expectations of 6.9% in 2024/25, aided largely by rural demand and government spending while watching closely the likely fatigue in urban demand, private capex and pace of global slowdown.”
The Reserve Bank of India (RBI) projects the economy to grow by 7.2% for the full fiscal year, a decrease from the previous year’s 8.2% growth, due to a contraction in state spending and tightened rules on retail loans by the central bank.