At 6.7%, growth slid to five-quarter low in Q1

Highlights:

• India’s economic growth showed signs of moderation in the first quarter of FY 2024-25, with real GDP expanding by 6.7%.
• This is the slowest growth in five quarters and falls short of the Reserve Bank of India’s (RBI) forecast of 7.1%, as well as the 7.8% growth registered in the preceding quarter.

Key Highlights:

1. GDP vs. GVA Growth:

• For the first time in a year, the growth in real Gross Value Added (GVA) surpassed GDP growth, registering a 6.8% rise in Q1 FY 2024-25.
• This marks a significant shift from the previous two quarters of FY 2023-24, where GVA growth lagged behind GDP by 1.8 and 1.5 percentage points, respectively.

2. RBI’s Growth Projections:

• The RBI had projected a GDP growth of 7.2% for FY 2024-25. However, the softer-than-expected Q1 performance, combined with easing headline inflation, could influence the central bank’s monetary policy stance, especially in light of the U.S. Federal Reserve’s potential interest rate cut.

3. Government and Private Sector Expenditure:

• Chief Economic Advisor V. Anantha Nageswaran noted that the Q1 slowdown was anticipated due to reduced government expenditure amid general elections.
• Despite this, there was a better alignment between demand and supply in the economy.
• Private final consumption expenditure and gross fixed capital formation showed resilience, with the latter growing 7.5%, recovering from a low of 6.5% in the previous quarter.
• However, government final consumption expenditure declined by 0.2% in Q1, and public capital expenditure was 33.3% lower than a year ago.

4. Sectoral Performance:

• The Secondary Sector, including Construction, Manufacturing, and Utilities, drove GVA growth, with the sector expanding by 8.4%. Construction and Utilities showed double-digit growth of 10.5% and 10.4%, respectively, while Manufacturing grew by 7%.
• On the other hand, the Services Sector saw a slowdown, particularly in the ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ segment, which grew by 5.7%, down from 9.7% in the same quarter last year. Similarly, ‘Financial, Real Estate and Professional Services’ grew by 7.1%, compared to 12.6% a year ago.

Prelims Takeaways:

• GVA
• Core Sectors