GoodReturns Poll: Will India's GDP Growth Surpass RBI's 7.1% Estimate In Q1 Of FY25, Or Not?

India's Gross Domestic Products (GDP) growth rate is likely to moderate below 7% in the first quarter of FY25, as per a poll of 11 economists conducted by GoodReturns.In. Majority of economists expecting India's GDP growth rate to range between 6% to 6.8% in Q1FY25, while gross value added services (GVA) seen likely between 5.8% to 6.5%.

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA said: "Q1 FY2025 saw a temporary lull in activity in some sectors related to the Parliamentary elections and sluggish Government capex, both for the Centre and the states."

Further, she said, "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."

Nayar added, "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 services sectors, even as it provided a significant boost to electricity demand."

If that is the case, then GDP growth will moderate below 7% for the first time since the June 2023 quarter. The last time GDP growth stood below 7% was in Q4 of FY23 at 6.2%. Q1FY25 GDP growth rate will also most likely miss RBI's target of 7.1% for the quarter.

Out of 11 economists, only two predicted that the GDP growth rate could be 7% or at least at RBI's target level of 7.1%. While the lowest GDP growth forecast is at a six-decade low at 6% by ICRA.

"On balance, we foresee a transient moderation in India's GVA and GDP growth in Q1 FY2025 to 5.7% and 6.0%, respectively," Nayar said.

Meanwhile, only SBI Research economist expects GDP growth between 7-7.1%. However, the gross value added (GVA) growth rate is seen to moderate below 7% in the quarter under review.

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India said, "Based on SBI Nowcasting model, the forecasted GDP growth for Q1 FY25 would be in the range of 7.0-7.1%, with a downward bias. However, GVA will be below 7.0% and may be come in the range of 6.7-6.8%. The global economic growth outlook remains uncertain but the softening inflation has made space for monetary policy easing."

According to Ghosh, the indicators of corporate performance in Q1 2024-25 point to moderation in sales growth of manufacturing companies in both nominal and real terms, although excluding the petroleum sector, a better outturn emerges. Staff costs inched up in the manufacturing sector but debt servicing capability measured in terms of the interest coverage ratio remained stable.

Against this backdrop, Ghosh added that , profit margins has declined and this will pull down manufacturing growth. Indian Inc. in Q1FY25 with around 4000 listed entities, reported both top-line and bottom-line growth of around 9%, as compared to Q1FY24. However, Ex-BFSI, corporates reported only 5% growth in top line with degrowth in EBIDTA of -1% in Q1FY25 as compared to growth of 23% in Q1FY24. subsequently, corporate GVA grew by around 10.9% in Q1FY25 as compared to 17% in Q4FY24 and 26% in Q3FY24. During Q1FY25, aggregate EBIDTA margin also fell by around 100 bps in Q1FY25 for the said set of corporates."

On the positive side, SBI's chief economist added, "After a lackluster performance in June, SW monsoon picked up from early July, closing the deficit. As of August 25, 2024, the cumulative rainfall was 5% above the LPA as against 7% below the LPA during the same period last year. Consequently, as of August 20, 2024, the total kharif sown area stood at 103.1 million hectares (94% of full season normal area), which is 2.0% higher than the corresponding period last year. We expect agricultural growth to rebound to 4.5-5% in FY25 adding around 30 bps over RBI forecast."

Meanwhile, Nomura also believes that better rainfall should drive the rural economy.

Nomura's note said, "Better rainfall should help the rural recovery, although rural terms of trade remain low by historical standards and real rural wage growth continues to contract. In the near term, the absence of a broad-based private consumption and private capex recovery, ebbing terms-of-trade tailwinds for firms, the slump in government spending (reflecting the election-led drag) and macroprudential tightening by the RBI might emerge as drags. However, India's strong medium-term growth drivers, robust fundamentals and continued reforms should ensure GDP growth of ~7% (FY25: 6.9%; FY26: 7.2%).

For Q1, Nomura is expected GDP growth rate of 6.3%, and expects momentum to pick-up from Q2 with growth estimate of 7.3%, and further at 7.7% in Q3 with a slight moderation to 7.6% in Q4.,

Moreover, Deloitte projects annual GDP growth to be between 7.0% and 7.2% in fiscal 2024 to 2025 and between 6.7% and 7.3% the following fiscal year as markets adapt to geopolitical uncertainties in their investment and consumption decisions.

Deloitte expects strong growth from Q2 as well. It added, "Following a period of uncertainty in the first six months of the year, we believe India will see very strong growth in the second half. Some of the key contributing factors would be the continuity in domestic policy reforms, reduced uncertainties in the United States after elections, and a more synchronous global growth in a low inflation regime. Improved global liquidity conditions (as central banks in the West ease their monetary policy stance and cut policy rates) would improve capital flows and drive higher investments, especially in the private sector. A synchronous global economic recovery next year will likely help improve exports."

Furthermore, Union Bank Of India economist expects GDP growth at 6.7% with GVA around 5.8%. Goldman Sachs sees GDP growth at 6.6% in Q1, and further Deutsche Bank forecasts 7%, and Acuite Ratings & Research is predicting a 6.4% rate. Meanwhile, CRISIL estimates a GDP growth rate of 6.8% in Q1FY25 and a GVA of 6%. Nirmal Bang is expecting a 6.3% rate in the first quarter.

Finally, RBI has retained its GDP growth forecast of 7.2% for FY25, with quarterly estimates for GDP in 2024-25 being 7.1, 7.2, 7.3 and 7.2 in Q1-Q4, respectively.

In the fourth quarter of FY24, India's GDP growth stood at 7.8%, and overall fiscal growth was at 8.2%, making it the best-performing economy among other Western and developed countries.

The government will announce the first quarter GDP growth data for FY25 on August 30, 2024.

As per brokerage Fisdom report, India's real GDP grew by an impressive 8.2% during 2023-24, surpassing even the most optimistic estimates from both government and private agencies. The National Statistical Office (NSO) released this estimate on May 31, 2024, exceeding the second advance estimate of 7.6% and the previous year's growth of 7%.

Lastly, Fisdom's note added, "GDP growth was consistent throughout the year, with over 8% growth in each of the first three quarters and 7.8% in the last quarter. This marks the third consecutive year with real GDP growth of 7% or more."

According to IMF, GDP measures the monetary value of final goods and services-that is, those that are bought by the final user-produced in a country in a given period of time (say a quarter or a year). It counts all of the output generated within the borders of a country. GDP is composed of goods and services produced for sale in the market and also includes some nonmarket production, such as defence or education services provided by the government.