GDP growth expected to moderate to six-quarter low of 6% in June quarter: Icra

India's gross domestic product (GDP) growth is expected to moderate to 6%—a six-quarter low—during the three months ended 30 June 2024 due to a dip in government capital expenditure and urban consumer confidence, rating agency Icra said on Thursday.

India's GDP grew 7.8% during the three months ended 31 March 2024 (Q4FY24) and 8.2% during the year ended 31 March 2024 (FY24). The Reserve Bank of India has forecast real GDP growth of 7.2% for FY25.

The gross value added (GVA) growth is estimated to ease to 5.7% in the June quarter from 6.3% in the March quarter, according to Icra.

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This is because the industrial sector growth is expected to decline to 6.4% in the first quarter of FY25 from 8.4% in the fourth quarter of FY24. Even the expansion of the services sector is expected to ease to 6.5% from +6.7% in the previous quarter.

Meanwhile, the rating agency expects a slight pick-up in the agricultural GVA growth to 1% from 0.6% in the previous quarter.

GVA is an economic metric that measures the value of goods and services produced in an economy.

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"Q1FY25 saw a temporary lull in activity in some sectors due to the parliamentary elections and sluggish government capex, both for the Centre and states. Further, urban consumer confidence reported a surprising downtick in the May 2024 (and July 2024) rounds of the central bank’s Consumer Confidence Survey, while the lingering impact of last year’s unfavourable monsoon and an uneven start to the 2024 monsoon prevented a broader improvement in rural sentiment," said Aditi Nayar, chief economist, head-research and outreach, Icra.

"Lower volume growth combined with diminishing gains from commodity prices weighed upon the profitability of some of the industrial sectors. The heat wave also affected footfalls in various service sector businesses, even as it boosted electricity demand," Nayar added.

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Icra foresees a transient moderation in India’s GVA and GDP growth in the first quarter to 5.7% and 6%, respectively.

Seven indicators, largely related to public spending, transport, communication and exports, improved on an annual basis in the June quarter, according to the Icra report.

These include non-interest revenue spending of the central government and 22 state governments, commercial vehicle sales (aided by a favourable base), service sector exports, aviation turbine fuel consumption, cargo traffic and telephone subscribers.