Slow pace of industrial activity, especially in manufacturing, mining and electricity sectors, and tepid consumption growth, mainly in urban areas, is likely to have resulted in a slower economic growth rate in the July-September quarter. Real Gross Domestic Product (GDP) growth in Q2, for which data will be released today, is seen slowing to a six-quarter low of 6.5 per cent from 6.7 per cent in April-June and 8.1 per cent a year ago, as per the median of estimates by 12 economists. While capital expenditure saw a pickup in Q2 after the model code of conduct-induced slump during the Lok Sabha elections earlier, it has remained below the year-ago levels for both states and Centre, adding to the growth slowdown concerns. Among all sectors, agricultural growth is being seen as the bright spot with good kharif output estimates and a recovery in rural demand. “We expect agriculture GDP to rise to a 6-quarter high of 6.0 per cent, given elevated kharif food production estimates. However, the biggest loss of momentum is visible in the industrial sector, with mining, electricity & gas slowing considerably, while manufacturing GDP growth may broadly move sideways to register 6.0 per cent YoY growth, in line with IIP data. Construction growth is likely to climb down to 6.0 per cent from the elevated 10.5 per cent YoY growth in Q2 24, as steel output growth declined, while cement grew slightly. Services growth is likely to lose some momentum largely due to a pullback in credit growth, which has slowed down considerably in recent months,” Rahul Bajoria, India & ASEAN economist, Bank of America said. The GDP data for July-September is scheduled to be released by the National Statistical Office (NSO) today at 1600 IST. The GDP growth estimates range between 6.2 to 6.9 per cent for July-September. A sharper moderation in exports than imports is also seen weighing on Q2 growth, with the drag estimated to be of about 1.1 percentage points as compared to contribution of 0.7 percentage point in Q1, Sonal Varma, Nomura’s chief economist for India and Asia ex-Japan said, adding that overall, India is seen to have entered a “cyclical growth slowdown”. “On the supply side, we expect GVA growth to moderate to 6.3 per cent YoY in Q2 from 6.8 per cent in Q1, with growth easing in the industrial and construction sectors. On the positive side, we expect agricultural growth to pick up, “financial, real estate and professional services” growth to remain robust, and we are building in a recovery in the erstwhile lagging “trade, hotels, transport and communication” sector. Overall, we believe India has entered a cyclical growth slowdown, and we see rising downside risks to our baseline GDP projections of 6.7 per cent YoY in FY25 and 6.8 per cent in FY26,” Varma said. The Reserve Bank of India (RBI) has projected GDP growth rate for FY25 at 7.2 per cent and 7.1 per cent for FY26. Last week, Economic Affairs Secretary Ajay Seth had said there is “no significant downside risk” to the 6.5-7 per cent growth projection for the ongoing financial year 2024-25, as detailed in the Economic Survey, despite a likely slowdown in the September quarter. Growth prospects going ahead While one of the biggest concerns is regarding the slow pace of capex by both states and Centre, a pickup in rural demand and agricultural growth is seen supporting growth going ahead. Capex is expected to undershoot the target of Rs 11.11 lakh crore for FY25 with rough estimates showing that Centre’s capex could turn out to be around Rs 55,555 crore less than the target. The second half poses a challenge for the Centre as it will have to step up its capex by 52 per cent in H2 to achieve the FY25 budget target of Rs 11.11 lakh crore. Similarly, states require an over 40 per cent expansion in capex during the second half to meet their budget targets. However, economic indicators for October already point to a positive shift in overall activity, with notable improvements across multiple sectors including manufacturing and services Purchasing Managers’ Indices (PMI), GST collections, e-way bill volumes, and toll revenues, HDFC Bank’s Treasury Research said in a note. The demand-side dynamics show that rural demand is now beginning to outpace urban demand, it said. “We have seen a sharp uptick in services and agriculture. This augurs well for growth. There has been a 7-8 per cent growth in corporate profits and except for oil, gas and steel, other sectors have performed better. There has been a pickup in consumption as can be seen from GST (Goods and Services Tax) figures and automobile sales. Inflation is also expected to move downwards December onwards. We see FY25 GDP growth at 7.3-7.4 per cent,” Madan Sabnavis, chief economist, Bank of Baroda said. Rabi sowing is also expected to do well and the potential for growth momentum is positive for H2 with a recovery in government spending, Rajani Sinha, chief economist, CareEdge Ratings said. “This recovery is expected to support both capex and private consumption demand. Rabi sowing is expected to do well as reservoir levels remain comfortable in most regions. A good kharif crop, along with a brighter prospect of rabi sowing, augurs well for rural demand conditions,” Sinha said.
