India’s GDP growth likely moderated to 6.5% in Q2, says Icra

New Delhi: India’s GDP growth is likely to have slowed marginally to 6.5% in the second quarter of FY2025 from 6.7% in the previous quarter, primarily due to heavy rainfall, weak corporate margins, and subdued exports, according to rating agency Icra.

The agency, in its report on Wednesday, also projected a slowdown in gross value added (GVA) growth, an economic metric that measures the value of goods and services produced in an economy, to 6.6% in the September quarter from 6.8% in the previous quarter.

While government capital expenditure and healthy kharif sowing provided a lift, their impact was offset by disruptions caused by excessive rainfall, which affected mining, electricity demand, and retail activity during Q2FY25, the rating agency said.

“Margins appear to have weakened for corporates across sectors, and merchandise exports have contracted," said Aditi Nayar, chief economist at Icra.

"These headwinds have resulted in a slight dip in GDP and GVA growth projections for the quarter," she added.

India's economy grew 6.7% in the April-June quarter, marking the slowest pace in five quarters, according to data released by the statistics ministry in August. This followed a 7.8% expansion in the previous quarter.

In Q1FY25, real GDP (at constant prices) was estimated at  ₹43.64 trillion, up from  ₹40.91 trillion a year earlier.

Nominal GDP (at current prices) was estimated at  ₹77.31 trillion, compared to  ₹70.50 trillion in the previous year.

The agriculture sector grew 2% in the April-June quarter, down from 3.7% a year earlier.

Meanwhile, the manufacturing sector grew 7% in the first quarter of this fiscal year, compared to 5% in the previous year. 

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Sectoral trends

Icra expects the industrial sector to see a sharp moderation, with GVA growth dipping to 5.5% in Q2 from 8.3% in Q1.

Electricity and mining sectors were the hardest hit in Q2, with growth slowing to 2.0% and 1.5%, respectively while manufacturing and construction experienced reduced growth momentum, the rating agency said.

The services sector is anticipated to register a modest uptick, with GVA growth rising to 7.8% in Q2 FY2025 from 7.2% in Q1, it said adding agriculture showed resilience, with GVA growth projected at 3.5%, bolstered by robust kharif sowing and improved monsoon coverage. 

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Investment activity

The government’s capital expenditure is expected to rebound in Q2, growing by 10.3% year-on-year after a sharp 35% contraction in Q1, primarily due to general elections.

This will be driven by increased infrastructure spending, particularly by the ministry of road transport and highways and the ministry of railways. Private sector investment is also expected to surge in Q2FY25, with new project announcements rising sharply to ₹5.2 trillion, the rating agency said.

Icra said it remains optimistic about a recovery in the second half of FY2025, supported by healthy kharif output, improved rural sentiment, and a ramp-up in government spending.

The agency expects FY25 GDP growth at 7% and GVA growth at 6.8% while cautioning against risks from geopolitical developments and slowing consumption. 

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