India's GDP growth to moderate at 6.7 per cent in Q1 FY25 amid industry downturn: Union Bank

Ahead of the official release of the first quarter GDP growth numbers for FY25 on August 30, a report by the Union Bank suggests the GDP rate to be moderated at around 6.7 per cent. The Gross Value Added (GVA) growth for the same period is likely to settle at around 5.8 per cent as against 6.3 per cent in the last quarter of the previous fiscal, (Q4 FY24).

This figure is slightly below the Reserve Bank of India's (RBI) projection of 7.1 per for Q1 FY25. As per the report, the key driver of the slowdown was the industry segment growth. Election-related uncertainty, imposition of a code of conduct leading to lagged government spending and June being a seasonally weak quarter have added to the anticipated moderate GDP growth figure.

"Key driver of the slowdown was the industry segment and secondly, June is a seasonally weak quarter and election-related uncertainty combined with lagged government spending exacerbated the impact. High-frequency indicators also signaled a slowdown as reflected in our economic activity index," the report added.

High-frequency indicators also signaled a slowdown as reflected in our economic activity index, the report added in support of its anticipation. This marks the third consecutive quarter of declining industrial growth, with the sector's GVA growth rate falling from 8.4 per cent in Q4FY24 to 5.8 per cent in Q1FY25.

Highlighting the downturn, it added that the manufacturing segment has been hit hard, with GVA growth dropping sharply from 8.9 per cent in the previous quarter to 4.5 per cent year-on-year. This decline is attributed to a significant slowdown in earnings, with operating profits of listed manufacturing companies rising by a mere 2 per cent (YoY).

The construction sector also witnessed a continued decline, with growth slipping from 8.7 per cent in Q4FY24 to 7.5 per cent this quarter. Meanwhile, the services sector which has been a strong performer in the Indian economy witnessed a slight reduction in the growth to 6.6 per cent from 6.7 per cent in the last quarter.

However, the agriculture sector is likely to give a surprise on the upside with its growth spiking sequentially to 2.2 per cent in Q1FY25 from 0.6 per cent in Q4FY24. This will be the highest number in the last four quarters though it is still lagging behind the growth rate of 3.7 per cent seen in Q1FY24. The report however is optimistic on the overall growth outlook and says that even with a slowdown in Q1 the GDP growth for the full year will remain strong at 7 per cent.

"On a full-year basis, we continue to expect GDP growth to remain strong at 7 per cent with slowdown primarily statistical on closing wedge between GDP and GVA growth. Risks to growth are from sharper than expected global growth slowdown and uneven monsoon distribution limiting rural demand recovery," it added.