India's growth fairy seems to have lost a bit of its roar.
During the first quarter of the current fiscal, real GDP grew by 6.7%, as against 7.8% in Q4, FY24 and 8.2% a year ago. The continuing decline in agriculture, private consumption along with a slowdown in government expenditure landed a sidewinder punch on the growth rate, which hit below 7%.
The estimate is within the consensus expectations that stretched a wide range of 6%-7.1%, but the slowdown in economic activity raises doubts if India can see another banner year, especially after FY24's growth momentum, which seemed unstoppable, like the march of time.
Analysts had forewarned about the likely decline in growth citing lower government expenditure amid the 2024 election season. But what's upsetting is the fact that all the other moving parts of the economy, taken together, couldn't make up for the decline in the gold vein of government spending. In other words, private consumption, investments and agricultural sector that were expected to ginger up and aid growth, are yet to commit themselves fully.
According to the data released by the National Statistics Office on Friday, real Gross Value Added (GVA) grew by 6.8% in Q1, FY25 as against 8.3% in Q1 of the previous financial year, led by the growth in secondary sector that turned in 8.4% growth over last year. In absolute numbers, real GDP at constant prices is estimated at Rs 43.64 lakh crore during Q1, compared to Rs 40.91 lakh crore a year before, registering a 6.7% growth rate. Real GVA in Q1 is estimated at Rs 40.73 lakh crore as against Rs 38.12 lakh crore last year, showing a growth of 6.8%.
On the supply side, if both primary and tertiary sector saw a slowdown, Q1 headline number got the gentlest of encouragement from the secondary sector.
Primary sector comprising agriculture and mining and quarrying registered a pale growth of 2.7% in Q1, as against 4.2% last year. Within this, growth in agriculture and allied services sector, which is enduring a sober fate, crawled to a dismal 2% compared to 3.7% registered a year before. Mining and quarrying, on the other hand, saw a flat growth of 7.2% compared to 7% last year. The primary sector is like the breath of life itself and needs to do better. It holds the keys for both food inflation, as well as, private consumption -- the two other components that are troubling households.
Tertiary sector, like the primary sector, witnessed a slowdown registering 7.2% growth rate during Q1 compared to 10.7% registered last year. Two of three sub-components namely trade, hotels, and other services and financial, real estate and professional services saw a significant decline in economic activity during the quarter gone by. However, public administration, defence and other services posted a growth rate at 9.5% in Q1 compared to the previous year's 8.3%, but the marginal increase wasn't significant enough to make up for the decline in trade and financial services sectors.
It's the secondary sector that did the heavy lifting during Q1, having turned in a growth rate of 8.4% as against 5.9% last year. All the three sub-components namely manufacturing, electricity, and other utility services and construction clocked in higher growth rates over last year at 8.4%, 10.4% and 10.5% respectively.
On the expenditure side, private consumption, the largest component accounting for over 56 % of the GDP, needs lots of improvisatory energy. During Q1, it grew by 9.8% as against the previous year's 8.2%, but has much potential. Government final consumption expenditure, which has been playing to the whistle, finally took a break, thanks to the elections. It saw a de-growth of declined to 0.2% y-o-y at Rs 4.14 lakh crore.
Gross fixed capital formation, an indicator of investment activity, increased by 7.5% in Q1.
