India’s GDP Expected to Grow by 7% in Q1 FY25
Driven by Services Sector
New Delhi, India – A day before the official release of India’s Gross Domestic Product (GDP) figures for Q1 FY25, a report by Anand Rathi research estimates the GDP to grow by 7 per cent. This growth is primarily driven by the robust performance of the services sector.
The financial advisory firm also maintains its full-year GDP growth projection at 7 per cent, though it warns of potential downside risks. Utilities Gross Value Added (GVA) is expected to rise by 11.5 per cent, while the construction sector has slowed due to election-related disruptions and the impact of heat. The mining sector remains strong, supported by increased coal production.
Despite reduced government spending ahead of the elections, which is likely to dampen growth in some service sectors, financial, real estate, and professional services are expected to have performed well. This performance is attributed to strong market activity and credit growth. However, the trade and transport sectors present a mixed picture, with some indicators showing improvement while others remain moderate. Overall, Services GVA is expected to grow by 8.2 per cent in Q1 FY25.
Investment was a key growth driver in FY24, fueled by government infrastructure projects and a real estate upswing. However, the momentum appears to have slowed in Q1 FY25 due to pre-election restrictions. Despite this, the report predicts a significant rise in government capital expenditure in the coming months, supported by greater budget allocations.
The report highlights the changing dynamics of private consumption in India. FY24 saw weak consumption, especially in rural areas, with final consumption expenditure growing by just 3.8 per cent. However, as FY25 begins, there are signs of a rural revival. Indicators such as increased two-wheeler sales and improving Fast-Moving Consumer Goods (FMCG) volume growth signal a rebound in rural demand. In contrast, urban demand continues to show signs of sluggishness. The muted sales of passenger vehicles, weaker retail credit transfers, and flat Goods and Services Tax (GST) collections underscore this trend. While consumption is not expected to see a significant rise in Q1 FY25, the outlook for the remainder of the year appears positive. This optimism is bolstered by anticipated higher agricultural output and sharper government focus on rural areas.
The agriculture sector is expected to post a subdued growth of 2.1 per cent in Q1 FY25, affected by scorching heat and uneven rainfall last year, which led to lower reservoir levels and hindered farming activities. However, the outlook is more promising for the remainder of the fiscal year, with better rains and improved sowing conditions expected to boost agricultural output.
Additionally, a rebound in stamp duty collections suggests buoyant real estate sales. Private capital expenditure, which was previously subdued, is expected to expand in FY25, driven by rising capacity utilization and strong order books. The industrial sector, which grew by 9.5 per cent in FY24, is expected to see a shift in growth drivers in Q1 FY25. The focus is now moving towards utilities and mining, with manufacturing growth slowing. While government infrastructure projects and private capital expenditure will continue to support industrial growth, the global growth slowdown poses potential risks.
Doubts Revealed
GDP -: GDP stands for Gross Domestic Product. It is the total value of all goods and services produced in a country in a specific time period.
Q1 FY25 -: Q1 FY25 means the first quarter of the financial year 2025. In India, the financial year starts in April and ends in March, so Q1 FY25 refers to April to June 2024.
Services Sector -: The services sector includes businesses that provide services rather than goods, like banking, education, healthcare, and tourism.
Anand Rathi -: Anand Rathi is a financial services company in India that provides research and advice on investments and the economy.
Utilities GVA -: GVA stands for Gross Value Added. Utilities GVA refers to the value added by services like electricity, water, and gas supply.
Government Capital Expenditure -: Government capital expenditure is the money the government spends on building infrastructure like roads, schools, and hospitals.
Rural Demand -: Rural demand refers to the buying needs and habits of people living in villages and small towns.
Urban Demand -: Urban demand refers to the buying needs and habits of people living in cities and large towns.
Pre-election Restrictions -: Pre-election restrictions are rules that limit certain activities, like spending money, before elections to ensure fairness.
