NEW DELHI: The GDP growth slumped to a 15-month low with 6.8% real rate of growth in the first quarter of 2024-25. However, there are some reasons for hope and cheers. Private consumption growth during the quarter surged to a 2-year high of 7.4% as against 4% in the previous quarter and 5.5% in the year-ago period. Private final consumption expenditure accounted for 56.3% of GDP in the first quarter of FY25 as against 55.9% in the same quarter a year ago.
The strong growth in consumption in Q1 was seen despite an uneven monsoon and intense heat wave. As per experts, pick up in the rural demands as well as moderation in retail inflation might have worked in favour of private consumption during the period.
Rural demand pick-up was signaled by better sales numbers of two-wheelers, tractors and FMCG sales. Two-wheeler sales grew 12.6% in Q1. While the Q1 tractor sales were 12.44%, the sales in April surged by 33%. Recovery in rural India kept FMCG sales growth steady.
As per Gaura Sen Gupta, economist, India First Bank, the (consumption) growth is likely led by rural demand with improvement in labour market conditions. “There has been a fall in demand for jobs under NREGA in Q4FY24 and Q1FY25. Rural demand indicators remain positive with momentum in two-wheeler sales (20.4%YoY in Q1) and improvement in tractor sales,” says Gupta. She said consumption growth during Q1 indicates urban spends has held-up, against expectation of a moderation.
High frequency indicators for urban demand like FMCG sales volume and passenger vehicle (PV) sales growth remained muted in Q1. PV sales grew at 2.53% in Q1.
Private investment
Investment as indicated by gross fixed capital formation (GFCF) remained strong with 7.5% growth in Q1 as against 6.5% in Q4FY24 despite fall in government spends due to model code of conduct ahead of Lok Sabha polls. GFCF in Q1 grew at 6.5%. This might indicate pick-up in private investment. “Pick-up in private capex spends could have played a supporting role, amid RBI’s OBICUS (Order Books, Inventories, and Capacity Utilisation Survey) based capacity utilisation rising to 76.8% in Q4FY24, above long period average of 74-75%,” says a note by QuantEco Research.
