SBI lowers FY25 forecast as Q1 growth falls below expectations
What's the story
India's Gross Domestic Product (GDP) growth for the first quarter of the fiscal year 2024-25 has slowed down to 6.7%, the lowest in the last five quarters.
While still above the average decadal growth rate of 6.4% for Q1, this figure fell short of the Reserve Bank of India (RBI)'s projected figure of 7.2%.
The State Bank of India (SBI), India's largest commercial bank, has responded to this dip in GDP by revising its full-year growth projection downward to 7%.
Sectoral performance
Agriculture and services sectors underperform
The SBI report attributes the subdued Q1 growth figure to weaker performances in both the agriculture and services sectors.
Agriculture, a significant component of the economy, grew by a modest 2%, reflecting challenges such as adverse weather conditions or subdued demand.
The services sector registered a growth of 7.2%, lower than the robust expansion seen in previous quarters.
Economic expansion
Nominal GDP grows by 9.7% in Q1 FY25
Despite the slower real GDP growth, nominal GDP, which includes inflation, grew by 9.7% in Q1 FY25.
This is a significant improvement compared to the 8.5% growth recorded in Q1 FY24, suggesting that the economy is expanding in value terms even if real growth is slightly subdued.
The report also noted that government expenditure during Q1 grew by 4.1%, slower than previous periods due to general elections taking place during this quarter.
Growth forecast
RBI's annual growth projection may need revision
The RBI had projected GDP growth for FY25 at 7.2%, based on an anticipated growth of over 7% in Q1.
However, now with the actual Q1 growth coming in at 6.7%, the SBI report stated that the annual growth projection might need to be revised downwards.
The report concluded that a GDP growth rate of around 7% for FY25 now appears more reasonable, slightly below the RBI's earlier estimate but still indicative of a strong economic performance.