GDP growth still resilient

Against the Reserve Bank of India's (RBI's) projection of 7.1 per cent, India's first quarter (Q1) 2024-25 (FY25) gross domestic product (GDP) growth came in at 6.7 per cent.

- SUNIL KUMAR SINHA

This is in line with market expectations and significantly lower than the 7.8 per cent recorded in the fourth quarter (Q4) 2023-24 (FY24) and 8.2 per cent in Q1FY24.

The quarter witnessed decreased government consumption and investment spending due to the parliamentary election. Yet, India continues to be one of the fastest-growing large economies in the world, demonstrating continued growth momentum driven by investment and consumption despite geopolitical tensions and fears of a potential recession in key economies and financial markets. The high difference noticed in the gross value added (GVA) and GDP growth during the third and fourth quarters of FY24 has eased in Q1FY25. The significantly higher GDP growth compared to GVA in the last two quarters occurred due to higher net tax (gross tax minus subsidy) collection.

While manufacturing GVA grew by 11.5 per cent and 8.9 per cent in the third quarter (Q3) of FY24 and Q4FY24, respectively, the manufacturing output growth, as captured by the Index of Industrial Production, grew by 6.2 per cent and 5.1 per cent in the same quarters.

The much higher GVA growth compared to output growth indicates higher margins/profits and, in turn, a higher tax payout by corporates, which seems to have normalised in Q1FY25.

The largest demand driver of the economy from the demand side, private final consumption expenditure, grew at 7.4 per cent in Q1FY25 (Q4FY24:4 per cent and Q1FY24: 5.5 per cent).