ICRA Projects Agricultural GVA Growth at 3.5 percent in Q2 FY2025

ICRA has projected the Gross Value Added (GVA) growth in agriculture, forestry, and fishing to rise to 3.5 percent in Q2 FY2025, up from 2.0 percent in Q1 FY2025. This improvement is attributed to favorable trends in kharif sowing and an estimated 5.7 percent growth in kharif foodgrain output. However, despite this boost in agricultural performance, India's overall GDP growth is expected to dip slightly to 6.5 percent from 6.7 percent, while GVA growth is estimated to ease to 6.6 percent from 6.8 percent.

The decline in GDP and GVA growth is primarily driven by weaker industrial performance, with industrial GVA growth expected to moderate to 5.5 percent in Q2 FY2025 from 8.3 percent in Q1. Key industrial segments, including electricity, mining, and construction, reported slower growth due to heavy rainfall and reduced corporate margins. In contrast, the services sector showed resilience, with GVA growth estimated to rise to 7.8 percent in Q2 FY2025 from 7.2 percent in Q1, supported by improving demand.

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA said: “Q2 FY2025 saw tailwinds in terms of a pickup in capex after the Parliamentary Elections as well as healthy expansion in sowing of major kharif crops. Several sectors faced headwinds on account of heavy rainfall, which affected mining activity, electricity demand, retail footfalls, and a contraction in merchandise exports. Further, margins appear to have weakened for corporates in a variety of sectors in this quarter. As a result, we project a slight dip in India’s GVA and GDP growth in Q2 FY2025 to 6.6% and 6.5%, respectively.

“The benefits of the healthy monsoons lie ahead, with upbeat kharif output and replenished reservoirs likely to lead to a sustained improvement in rural sentiment. In addition, there is considerable headroom for the GoI’s capital expenditure, which needs to expand by 52 percent in YoY terms in H2 FY2025 to meet the Budget Estimate for the full year. However, we are watchful of the impact of a slowdown in personal loan growth on private consumption as well as geopolitical developments on commodity prices and external demand. On balance, ICRA expects a back-ended pickup in economic activity to boost the GDP and GVA growth in H2 FY2025, resulting in a full-year expansion of 7.0 percent and 6.8 percent, respectively,” added Nayar