With 6.7% GDP growth in Q1 FY25, SBI says full-year growth should be revised downwards to 7%

According to a recent report by the State Bank of India (SBI), the moderation in India's GDP growth for the first quarter (Q1) of the financial year 2024-25 (FY25) is still higher than the average decadal growth of 6.4% for Q1.

As per the Ministry of Statistics and Programme Implementation's official data released on Friday, the Indian economy grew by 6.7% in real terms in the April-June quarter of the current financial year 2024-25. This represents a slowdown compared to the preceding four quarters, where the economy consistently grew by over 7%.

The report said on the current growth numbers "Though the growth for Q1 has reduced to 6.7% YoY but it is still higher than the average decadal growth of 6.4% in Q1".

The report also highlighted that the Q1 growth figure is primarily subdued due to weaker performance in both the agriculture and services sectors. Agriculture, which is a significant component of the economy, grew by a modest 2.0%, reflecting challenges such as adverse weather conditions or subdued demand.

"The economy grew by more than 7% in the preceding four quarters and Q1 performance is below that due to low growth in both agriculture and services sectors" said the report.

Meanwhile, the services sector, although showing a better performance, registered a growth of 7.2%, which is lower than the robust expansion seen in previous quarters. The performance of these key sectors has thus contributed to the overall slower growth in Q1.

Despite the lower-than-expected growth in real GDP, the report pointed out that nominal GDP, which includes inflation, grew by 9.7% in Q1 FY25. This is a significant improvement compared to the 8.5% growth recorded in Q1 FY24, suggesting that the economy is expanding in value terms even if real growth is slightly subdued.

The report also added that government expenditure during Q1 grew by 4.1%, which, although slower than in previous periods, but it is because of the general elections that took place during this quarter.

"The government expenditure registered a growth of 4.1% which was slower but bearing in mind that Q1 was also the period marked by general elections" the report added.

Earlier, the Reserve Bank of India (RBI) had projected GDP growth for FY25 at 7.2%, based on an anticipated Q1 growth of 7.1%. However, now with the actual Q1 growth coming in at 6.7%, the SBI report stated that the annual growth projection might need to be revised downwards.

The report concluded that a GDP growth rate of around 7.0% for FY25 now appears more reasonable, slightly below the RBI's earlier estimate but still indicative of a strong economic performance.

"Now with 6.7% growth in Q1, the new annual projection would be 7.1%. We believe that GDP growth for FY25 will be a tad lower than the RBI's estimate and 7.0% growth looks more reasonable" said the report.