India’s economy experienced a slowdown in the first quarter of FY25, with GDP growth recorded at 6.7%. This figure marks the lowest growth rate in five quarters, down from 7.8% in the previous quarter and significantly lower than the 8.2% growth reported in Q1FY24. The data, released by the government on August 30, indicates that while the growth aligns with expert estimates, it falls short of the Reserve Bank of India’s (RBI) projection of 7.2% for the same period.
Factors Contributing to Slowdown
The decline in GDP growth has been attributed to reduced government spending, which has been influenced by election activities and adverse weather conditions, including heatwaves. Notably, capital expenditure utilization by the government dropped to 16.3% of budget estimates in Q1FY25, a significant decrease from 27.8% in the previous year. Aditi Nayar, Chief Economist at Icra, pointed out a stark reduction in investment activity, with capital expenditure by the central and state governments contracting by 35% and 23%, respectively.
Industrial Performance
Despite the overall slowdown, industrial production showed modest improvement, growing by 5.2%, compared to 4.7% in the preceding quarter. However, the agriculture sector lagged, recording only 2% growth, down from 3.7% in the same period last year.
Future Outlook
Looking ahead, India’s economy is still projected to maintain a growth rate exceeding 7% for the fourth consecutive year. Moody’s Ratings has revised its growth forecast for 2024 to 7.2%, reflecting optimism about economic resilience despite current challenges
