ICRA, a domestic rating agency, has revised India’s real GDP growth estimate for the September quarter to 6.5%, citing heavy rains and weaker corporate performance as major factors. Despite this slowdown, the agency has maintained its full-year growth forecast for FY25 at 7%, expecting an economic recovery in the second half of the fiscal year.
The revision comes amid concerns about growth deceleration, driven by factors such as weakening urban demand. The Reserve Bank of India (RBI) continues to project a 7.2% growth for FY25, but many analysts anticipate a figure below 7%, with recent revisions indicating a more cautious outlook.
ICRA’s estimate for the September quarter highlights the impact of heavy rainfall, which disrupted mining activities, electricity demand, and retail footfalls, while also contributing to a contraction in merchandise exports. On the positive side, government spending and healthy kharif crop sowing have shown encouraging trends. The services sector is expected to improve, with a recovery anticipated in the latter half of FY25.
Chief Economist Aditi Nayar pointed to several positive developments, including a pick-up in capital expenditure after the Parliamentary Elections and the growth of kharif crops. However, she noted that the industrial sector, particularly mining and electricity, faces challenges, and retail activity has been affected by adverse weather conditions.
Nayar also highlighted the positive impact of monsoon rains on rural sentiment, driven by strong kharif output and replenished reservoirs. She noted that while investment activity improved in Q2 compared to Q1, infrastructure project execution remained slow due to the surplus monsoon rains. However, new project announcements saw a healthy rebound, totaling Rs 6.7 lakh crore in Q2.
ICRA remains cautious about potential risks, including a slowdown in personal loan growth, which could affect private consumption, and external factors like geopolitical tensions and commodity price fluctuations.
