ICRA Projects Moderate Growth for India's Economy in Early 2025

The domestic rating agency ICRA forecasts a slowdown in India's economic growth to 6% in Q1 FY2025 due to reduced government capital expenditure and declining urban consumer demand. A rebound is expected in the latter half of the fiscal year, driven by increased capital expenditure, aiming for a 6.8% annual growth.

India's economy is projected to see a moderate growth rate of 6% in the first quarter of FY2025, according to the domestic rating agency ICRA.

This slowdown is attributed to a reduction in government capital expenditure and a dip in urban consumer demand.

ICRA Chief Economist Aditi Nayar noted that the temporary lull in some sectors was largely due to the Parliamentary elections and sluggish government capex at both central and state levels.

The official data for Q1 growth will be released by MoSPI on August 30.

In the previous fiscal, Q1 growth was at 8.2%, highlighting a notable downturn.

Nayar also pointed out that urban consumer confidence saw a decline according to the Reserve Bank of India’s Consumer Confidence Survey, and that last year's unfavourable monsoon and an uneven start to the 2024 monsoon hindered rural sentiment improvement.

Lower volume growth and shrinking gains from commodity prices impacted industrial sectors' profitability, while the heat wave adversely affected footfalls in various service sectors even as electricity demand surged.

Despite these challenges, ICRA expects a back-ended pick-up in economic activity, forecasting the GDP and GVA growth to reach 6.8% and 6.5% respectively for the full FY2025.

Considerable headroom exists for the government’s capital expenditure to expand by 39% YoY in July-March FY2025, potentially boosting GDP growth above 7% in the second half of the fiscal year.