Poll dampener: India's GDP growth slows to 15-month low of 6.7% in June quarter

India's growth slowed to a five-quarter low of 6.7% in the April-June period from a year earlier, as agriculture and trade-related services output eased. General elections during the quarter impacted government spending and the year-earlier high base effect moderated growth numbers.

The quarterly figure was in line with an ET poll median estimate of 6.85%, slipping from 7.8% in the last quarter of FY24 and 8.3% in the year before. The Reserve Bank of India (RBI) had forecast 7.1% growth for the quarter. However, gross value added, which strips out indirect tax and subsidies, is estimated to have grown 6.8% compared with 6.3% in the preceding quarter.

"India was the fastest-growing major economy in the June quarter. Data shows better alignment between demand and supply sides of the economy in the quarter," said chief economic adviser V Anantha Nageswaran.


Total government expenditure in the first quarter was ₹4.14 lakh crore, down from ₹4.15 lakh crore in the year-earlier period.

Strong Export Growth

Industrial production growth in the first quarter of FY25 was 5.2%, higher than 4.7% registered a year ago. "Slowdown in the first quarter was anticipated due to elections... In the medium term, the economy can grow at 6.5-7% annually," the CEA said, emphasising that momentum remains strong.

Crisil chief economist DK Joshi said, "The slowdown in GDP growth in the first quarter was a foregone conclusion due to signs of weak urban consumption, tepid corporate results and slowdown in government spending."

Also read: Crude, natgas drag July core growth to 6.1%

Exports recorded a strong expansion of 8.7% despite slow growth in global trade. "Manufacturing has done better than expected at 7%, which is higher than last year, notwithstanding the fact that corporate profitability was muted," said Madan Sabnavis, chief economist at Bank of Baroda. "This can be supported by the higher growth seen in private consumption expenditure in both constant and current prices."

Nageswaran said resilient urban demand that is accompanied by a recovery in rural areas bolstered by a good monsoon will lead to overall consumption getting lifted.

Private consumption grew 7.45% from 5.55% a year ago. "Inflation is under control, set to boost consumption," the CEA said.

Also read: Economy can Grow over 7% on structural reforms, says CEA

High net imports also exerted a drag on GDP growth. Agriculture grew 2%, lower than 3.7% a year ago, while manufacturing expanded 7% from 5% in the first quarter of FY24. Gross fixed capital formation, an indicator of investments, grew 7.49% in the quarter, slower than 8.5% year ago.

Outlook

Economists expect above 7% growth in the full fiscal year fuelled by consumption picking up, steady growth in capital formation and government spending accelerating after elections.

Icra chief economist Aditi Nayar said, "We anticipate a back-ended pickup in the GDP growth to above 7% in H2 FY25, boosted by factors such as government capex and pent-up rural demand during the festive months."

The near-term outlook is backed by strong investment demand and upbeat business sentiment besides healthy progress in the June-September monsoon and higher kharif sowing. This bodes well for farm output and rural demand, analysts said.