The year-on-year (YoY) expansion of the Gross Domestic Product (GDP) will dip to 6.5 per cent in Q2 FY2025 from 6.7 per cent in Q1FY2025, rating agency ICRA said on Wednesday.

It said, this is due to the heavy rains and weak margins offsetting the buoyancy injected by the turnaround in Government capital expenditure and healthy trends in kharif sowing.

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Further, the growth in the gross value added (GVA) is estimated to ease to 6.6 per cent in Q2 FY2025 from 6.8 per cent in Q1 FY2025, driven by the industrial (to +5.5% from +8.3 per cent ) sector, amid a pick-up in the expansion in services (to +7.8 per cent from +7.2 per cent ) and agricultural GVA (to +3.5 per cent from+2.0 per cent ).

Based on available data for the Centre and the states’ indirect taxes and subsidies, ICRA estimates that the growth in net indirect taxes (in nominal terms) rose slightly to ~9.0-9.5 per cent in Q2 FY2025 from 8.0 per cent in Q1 FY2025.

Given this, the GDP-GVA growth wedge (in real terms) is expected to remain inverted in Q2 FY2025 as well.

ICRA estimates the industrial GVA growth to record a broad-based moderation to 5.5% in Q2 FY2025 from 8.3 per cent in Q1 FY2025, led by electricity (to +2.0 per cent from +10.4 per cent ), mining and quarrying (to +1.5 per cent from +7.2 per cent), manufacturing (to +5.5 per cent from +7.0 per cent ), and construction (to +7.0 per cent from +10.5 per cent).

Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA said: “Q2 FY2025 saw tailwinds in terms of a pick-up 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 and 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 per cent and 6.5 per cent, respectively” she added.

ICRA in its report also highlighted that India’s investment activity improved in Q2 FY2025 over Q1, while remaining sluggish amid slow execution of infra projects owing to surplus monsoon rains.

The GoI’s capital expenditure reverted to a YoY expansion of 10.3 per cent YoY in Q2 FY2025 (Rs 2.3 trillion), following the 35.0 per cent contraction seen in Q1 FY2025 (Rs 1.8 trillion) led by the MoRTH (to +41.7 per cent from -39.6 per cent) and the Ministry of Railways (to +8.0 per cent from -15.2 per cent).

While the combined capital outlay and net lending of the 22 state governments (excluding Arunachal Pradesh, Gujarat, Goa, Jharkhand, Manipur and Odisha) rose by 2.1 per cent YoY in Q2 FY2025 (-20.0 per cent in Q1 FY2025), the pace of expansion remained muted.