India's GDP for Sept. quarter is likely to decline to 6.5%

New Delhi: Despite the government's claim to achieve about 7 per cent growth or above in the second half of the fiscal, domestic rating agency Icra on Wednesday projected that India’s real gross domestic product or GDP growth for the September quarter is likely to decline to 6.5 per cent due to heavy rains and weaker corporate performance. However, the agency maintained that the government may meet its growth target on expectations of a pick up in economic activity in the second half of the fiscal.

The projection on India's economic outlook comes at a time when there are concerns around the growth slowdown on many factors including declining urban demand, high inflation among others. However, the government had earlier projected a higher growth rate than the agency's in the second quarter this fiscal, while RBI is sticking to its estimate of 7.2 per cent growth for the fiscal, but a majority of watchers expect it to be under the 7 per cent figure and many have been revising down in the last few weeks.

The official data for the Q2 GDP is expected to be published on November 30. In Q1, the GDP expansion came at 6.7 per cent. But Icra said it's statement that the year-on-year (YoY) expansion of the GDP to dip to 6.5 percent in Q2 FY2025 from 6.7 percent in Q1 FY2025, with heavy rains and weak margins offsetting the buoyancy injected by the turnaround in government capital expenditure and healthy trends in kharif sowing.

"The Q2 FY2025 saw tailwinds in terms of a pick-up in capex after the Parliamentary Elections as well as healthy expansion in sowing of major kharif crops. Several sectors faced headwinds on account of heavy rainfall, which affected mining activity, electricity demand and retail footfalls, and a contraction in merchandise exports," Icra chief economist Aditi Nayar said.

"The benefits of the healthy monsoons lie ahead, with upbeat kharif output and replenished reservoirs likely to lead to a sustained improvement in rural sentiment. There is considerable headroom for the government's capital expenditure, which needs to expand by 52 per cent in Y-o-Y terms in H2 FY2025 to meet the budget estimate for the full year," Ms Nayar added.

"Further, the growth in the gross value added (GVA) is estimated to ease to 6.6% in Q2 FY2025 from 6.8 percent in Q1 FY2025, driven by the industrial (to +5.5 per cent from +8.3 per cent) sector, amid a pick-up in the expansion in services (to +7.8 per cent from +7.2 per cent) and agricultural GVA (to +3.5 per cent from +2.0 per cent)," Icra said.

It said that the dip in Q2 will be due to factors like heavy rains and weak corporate margins.“While government spending and kharif sowing have shown positive trends, the industrial sector, particularly mining and electricity, is expected to slow down," the rating agency said, adding that the services sector is projected to improve, and a back-ended recovery is anticipated, leading to a full-year GDP growth of 7 per cent.