India to clock 7% GDP growth in FY25, says HSBC Global Research

The Indian economy will likely grow 7% in fiscal year 2025 (FY25), despite a slowdown to 6.7% in Q1FY25, which marked the lowest growth rate in five quarters, according to HSBC Global Research. This optimistic forecast is driven by strong underlying growth momentum and the narrowing of key economic data gaps, the research arm of the banking and financial services major said in a report on Monday.

During Q1FY25, the gross value add (GVA)—which measures the total value of goods and services produced in the economy—grew by 6.8%, up from 6.3% in the previous quarter. The report, titled India GDP — Buoyant Momentum, Narrowing Gaps, attributes this improved clarity in underlying growth momentum to the recent convergence of previously widening data discrepancies.

The Reserve Bank of India (RBI) estimates gross domestic product (GDP) growth at 7.2% for FY25, aligning closely with the International Monetary Fund’s (IMF) projection of 7%.

The report highlighted the narrowing of four significant economic gaps: between GDP and GVA, consumption and investment, industry and services, and exports and imports. 

"With GDP and GVA growth in a narrow 6.7-6.8% range, we are finally starting to get a clearer sense of the underlying growth momentum," the report said.

It also noted a significant development where, after six consecutive quarters of investment growth outpacing private consumption growth (7.5% average vs. 3.2% average), the two metrics have finally converged, driven by a notable rise in private consumption.

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India’s GDP growth moderated to 6.7% annually in the April-June quarter (Q1), down from 7.8% in the previous quarter. This deceleration was largely due to a decline in government capital expenditure amid the general elections and a drop in urban consumer confidence, as reported by the statistics ministry last week.

Previously, the Indian economy recorded growth rates of 8.2%, 8.1%, 8.6%, and 7.8% across the four quarters of FY24, culminating in an overall 8.2% growth for the fiscal year.

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In an encouraging sign, gross fixed capital formation (GFCF), an indicator of investment, grew to 34.8% on an annual basis in Q1FY25, up slightly from 34.6% in the same period of the previous year.

The HSBC Global Research report also pointed out that industrial growth has exceeded services growth for the last three quarters. However, signs of convergence are emerging as industrial growth slows—primarily due to a gradual decline in manufacturing—while services growth accelerates, buoyed by both public and private services, as well as trade and transport services, despite a softening in financial services.

"After a wait of four quarters, export growth outpaced import growth," it added.

During Q1FY25, merchandise exports decreased to $35.20 billion in June from $38.13 billion in May, yet remained above the $34.99 billion recorded in April. Conversely, merchandise imports fell to $56.18 billion in June from $61.91 billion in May, though they were higher than the $54.09 billion registered in April.

According to the latest GDP data, manufacturing (7%), construction (10.4%), and utility services (10.5%)—which include electricity, gas, and water supply—posted robust annual growth during Q1 FY25, compared to the same period last year, which saw growth rates of 5%, 3.2%, and 8.6% respectively.

Agriculture, however, grew by just 2% annually in Q1 FY25, down from 3.7% in the same period the previous year, while mining recorded a growth rate of 7.2% in Q1 FY25, slightly higher than the 7% growth seen a year earlier.

"GVA growth picked up pace despite an ongoing heatwave (higher electricity production offset weak agriculture growth), weaker credit growth (higher personal services offset weaker financial services growth), and softer fiscal spending (private capex remained strong)," the report said.

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"Looking ahead, normalising temperatures after a debilitating heatwave in March are also likely to improve food production and rural demand over the next few quarters," it added.