India is in the midst of cyclical growth slowdown: Nomura

India is in the midst of a cyclical growth slowdown, led by headwinds from fading urban pent-up demand, tight monetary policy, household balance sheet stress, slowing nominal income growth and a negative credit impulse, according to Nomura.

India's GDP growth is expected to slip to a four-year low of 6.4% in the financial year 2024-25, as compared to 8.2% in 2023-24, as per the first advance estimates released by the government.

Nomura expects India’s gross domestic product (GDP) growth to be revised lower in final estimates. It expects a downward revision in FY25 GDP growth from 6.4% to closer to its forecast of 6%.

India’s statistical agency expects a rebound in GDP growth to 6.7% in the second half of FY25 (October-March) from 6% in the April-September period, driven by higher private consumption, government spending and curiously, a sharp decline in import growth. Fixed investment and export growth are expected to remain stable.

On the supply side, growth pick-up in the second half of FY25 is expected to be driven by a sharp increase in agricultural GVA growth and industrial growth, the latter led by manufacturing, says Nomura. “Services GVA growth is estimated to remain stable at 7.0% y-o-y in H2 FY25, with moderation in construction (8.1% in H2 vs 9.1% in H1), public administration (8.9% vs 9.3%) and continued weakness in the ‘trade, hotels, transport & communication’ at 5.8%. Only the ‘finance, real estate & professional services’ GVA growth is expected to pick up to 7.7% y-o-y in H2 FY25 vs 6.9% in H1,” says Nomura.

The advance estimates place nominal GDP growth at 9.7% y-o-y for FY25, below the government’s budgeted projection of 10.5%.

While nominal GDP growth is lower than budgeted, fiscal deficit remains on track, the Japanese brokerage says. However, the government is likely to underspend on capex in the revised estimates, which should ensure that the overall fiscal deficit remains on target, it says.

“Considering the advance estimates are based on partial data, and with the economy in a slowdown phase, we expect a downward revision in FY25 GDP growth from 6.4% to closer to our forecast of 6% y-o-y,” writes Sonal Varma, managing director and chief economist (India and Asia ex-Japan) at Nomura.

Growth has been a mixed bag during the festive season of October-November, especially for consumption, industrial and investment growth has been mostly tepid, and early data for December do not suggest a strong rebound thus far, says Nomura.