In the first quarter of the current fiscal, the economy of India slowed down. India’s GDP growth rate declined to 6.7% in the April-June quarter compared to the estimates made by different financial organizations including RBI. This decline in India’s q1 GDP growth rate has made analysts reevaluate their growth projections for FY25. Nomura downgraded the gdp forecast to 6.7% for the entire FY25 compared to its previous projection of 6.9%.
What causes slowdown in Q1 FY25?
The prime reason for the slowdown in the first quarter of the fiscal was elections. During the elections, manufacturing activities slowed down, along with other services, which put pressure on the Indian economy.
In the corresponding quarter last fiscal that 2023-24, the GDP grew at a rate of 8.2% from which it fell to 6.7% in the last quarter. Even the growth slowed down compared to the last quarter of FY24, when the gdp growth rate stood at 7.8%.
The GVA or gross value added also grew at a rate of 6.8% during the first quarter of FY25. Here GVA refers to gross domestic product minus the net product taxes. This metric is used for understanding whether supply is growing or not.
Sectoral Growth and the Impact
The sectors, that dragged the overall India’s gross domestic product growth down in the previous quarter, include the agriculture sector, which grew only by 2% owing to extreme heat waves, and wealth conditions. The supply declined in this sector due to these extreme conditions while the demand declined due to higher pricing of vegetables and food items. Since India still widely depending on this sector, so declining demand has negatively affected not only the sector but also the overall economic growth in the first quarter.
Apart from the agricultural sector, service sectors also slowed down in the previous quarter compared to the earlier quarters in the row. However, it grew at 7.2% during the April-June quarter, but the rate is lower than earlier quarters.
The Silver Lining
Though the growth rate in the first quarter has declined on a YoY basis, if you compare it with an average growth rate of Q1 of the past ten years, then 6.7% is still higher than the average 6.4% of decadal growth. While the real gdp growth rate declined in the previous quarter the nominal GDP grew at 9.7%, higher than the 8.5% recorded in Q1 of FY24. The nominal GDP does not consider inflation while the real GDP does.
Wrapping up
As we are now into the second quarter of FY25, as per projections by Nomura, SBI, RBI, and other entities, the growth is yet to pick up. However, with the upcoming festive season, it can be expected that the economy will bounce back.
Source: TheTimesofIndia, BusinessToday
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