New Delhi, August 31: India’s economic growth slowed to 6.7% in the first quarter of fiscal year 2024-25 (April-June 2024), its weakest in five quarters, undershooting the Reserve Bank of India’s (RBI) projection of 7.1%. The deceleration signals a moderation in the country’s growth momentum, as the economy grapples with reduced government spending and lower consumer demand.
Real Gross Value Added (GVA) in the economy, however, outpaced GDP growth for the first time in a year, rising by 6.8% in Q1. This marked a shift from the previous two quarters, where GVA growth trailed GDP growth by significant margins.
The agriculture sector showed signs of recovery, growing by 2% after a meager 0.6% rise in the preceding quarter. Manufacturing posted an improvement as well, with a 7% growth rate, up from 5% in the same quarter last year. However, the services sector struggled, particularly in the ‘Trade, Hotels, Transport & Communication’ segment, which saw growth dip to 5.7% from 9.7%. Similarly, ‘Financial & Real Estate Services’ growth eased to 7.1%, down from 12.6% a year ago.
Government final consumption expenditure contracted by 0.2%, and public capital expenditure plummeted by 33.3% year-on-year. Despite this, private consumption rebounded, reaching a six-quarter high of 7.4%.
“The 6.7% (growth) was well within the consensus anticipation… many components of the demand side, such as private consumption, gross fixed capital formation, and net exports, have held up quite well,” said Chief Economic Advisor V. Anantha Nageswaran. He also noted that the 2% rise in farm sector GVA signals a turnaround from recent quarters.
The RBI may reconsider its hawkish monetary policy stance amid the slower-than-expected growth and easing inflation. The central bank had previously projected full-year GDP growth at 7.2%, but the Q1 figures suggest a more cautious approach may be necessary, especially with the U.S. Federal Reserve hinting at potential interest rate cuts.
“Food inflation may soften due to good monsoons, steady improvement in kharif sowing, rising reservoir levels, and a likely favorable rabi season output,” said RBI Governor Shaktikanta Das. “The best contribution monetary policy can make for sustainable growth is maintaining price stability,” he added.
Despite the slowdown, India’s economy remains the fastest-growing among major global economies, outpacing China’s 4.7% GDP growth in the same quarter.
