NEW DELHI: While the Reserve Bank of India (RBI) has retained its economic growth projection for FY25 at 7.2%, most economists peg the growth rate at lower levels, citing “weak” manufacturing and tepid consumption. They also flag various high frequency data to support their less optimistic assumptions.
Real GDP expansion in the current financial year could be 6.8%, going by the median of estimates by ten economists gathered by FE.
Some economists say that this makes a case for the monetary policy committee to opt for a rate cut in its December meeting. “While the Central Bank remains optimistic on growth, moderation in recent high frequency indicators–core sector, PMI Manufacturing, GST collections, passenger car sales–also give reason for the RBI to look at rate cuts going forward,” said Rajani Sinha, chief economist, CareEdge.
With Wednesday’s statement, the RBI-MPC has retained the growth forecast at 7.2%, for the third consecutive time.
In Q1FY25, real GDP had grown by 6.7%, and the RBI expects growth to be at 7% in Q2, 7.4% in Q3, and 7.4% in Q4. Economists however say that Q2 growth would be much lower, perhaps even below 6.5%.
“We are seeing a slowdown in high frequency data, which despite signs of improvement in rural consumption may not be enough to offset the weakness in industrial data, which poses material downside risks to Q2 FY25 GDP forecast of 7% by RBI,” said Rahul Bajoria, India and ASEAN Economist, Bank Of America.
In September, the PMI prints for both manufacturing and services showed much slower expansion in activity. The manufacturing PMI at 56.5, stood at an eight month low, and services PMI stood at a 10-month low of 57.7. Passenger car sales during September contracted 19% on year, at a rate steeper than 11% recorded in August.
GST collections too showed a mere y-o-y growth of 6.5% in September, which was the lowest in 39-months. In absolute terms, the collections at Rs 1.73 trillion in September were even lower than Rs 1.74 trillion mop-up of the previous month. Typically collections rise in absolute terms in September from August, but FY25 marks the second year (first was in FY20), when the collections fell.
Many economists say the Q2FY25 growth may be at 6.5-6.7%, but some (such as Motilal Oswal) peg it as low as 6.2%.
The RBI has revised its H2FY25 growth outlook to 7.4% from 7.3% earlier, in the expectation of rising rural consumption and investment demand along with a pick-up in government spending. Analysts broadly agree with the second-half outlook, but say the sub-7% growth possibility in the first half, will have a major bearing on the full year’s growth.
According to ICICI Bank, the central government’s spending has already picked up in Q2 and is expected to further gain steam in H2. “Private sector capex should also continue to inch up with rising capacity utilisation (75.8% in Q1FY25 vs 74.6% in Q4FY24),” it said.
QuantEco Research said in a note that while there is bound to be a strong cyclical support to rural demand from a favourable monsoon out-turn, the recent deterioration in the geopolitical environment needs a close watch for “potential spillovers to India’s exports.”
Source: The Financial Express
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