There is no good news on the economy front. According to local rating agency ICRA, India’s economic growth rate is expected to slow in the second quarter of the current financial year due to challenges like heavy rains and weak corporate margins. GDP (gross domestic product) is expected to grow at a rate of 6.5% annually. This is down from 6.7% in the first quarter. However, some positive impacts have also been seen due to increase in government capital expenditure and strong Kharif sowing season.
There is also a possibility of a slight decline in gross value added (GVA). It is expected to be 6.6% in the second quarter. Whereas in the first quarter it was 6.8%.
According to ICRA Chief Economist Aditi Nair, the second quarter of FY 2024-25 saw favorable conditions in the form of increased capital expenditure following parliamentary elections and sowing of key Kharif crops. However, the sectors faced a lot of trouble due to heavy rains and weak margins. India’s GVA and GDP growth rates are expected to decline marginally in the second quarter.
increase in government spending
The second quarter saw a good recovery in government capital expenditure. It grew 10.3% year-on-year to Rs 2.3 trillion, a sharp contrast to the sharp 35% decline seen in the first quarter. The withdrawal was led by key infrastructure-focused ministries like the Ministry of Road Transport and Highways and the Ministry of Railways. They registered an increase of 41.7% and 8.0%. However, the pace of state government spending remained slow. The combined capital expenditure and net borrowing of the 22 states grew only 2.1% year-on-year in the quarter.
hopefully in the second half
ICRA expects economic activity to pick up in the second half of the financial year 2024-25. This will be driven by the positive effects of healthy monsoon, replenishment of reservoirs and increase in rural demand. Apart from this, there is a lot of scope for increase in government capital expenditure also. Meeting this year’s financial target requires a 52% year-on-year expansion in the second half. However, risks such as slowdown in personal credit growth, geopolitical uncertainties and its impact on commodity prices and external demand remain a matter of concern. For the full fiscal year, ICRA estimates GDP growth at 7.0% and GVA growth at 6.8%, indicating a back-ended recovery.
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