GDP growth hits 5.4% in Q2, lowest in 7 quarters

Last Updated02/12/2024

India’s real GDP growth slumped to a seven-quarter low of 5.4% in the July to September 2024 quarter, much lower than even the most pessimistic independent projections.

India’s real GDP growth slowed to 5.4% in Q2 FY 2024-25, marking a seven-quarter low. This decline is notable given the Reserve Bank of India's (RBI) earlier projection of 7% growth for the quarter. The contraction, coupled with a deceleration across key economic sectors, raises concerns about the country’s near-term growth trajectory.

GDP Growth: Declined to 5.4% from 6.7% in Q1 FY 2024-25 and 8.1% in Q2 FY 2023-24.
GVA Growth: Dropped to 5.8% from 6.8% in Q1 FY 2024-25.

Manufacturing: Slowed to 2.2%, a sharp fall from 14.3% in Q2 FY 2023-24.
Mining and Quarrying: Contracted by 0.1%, compared to an 11.1% rise a year ago.
Construction: Growth halved to 7.7% from 13.6%.
Agriculture: Improved to 3.5% from 1.7% in Q2 last year, showing resilience.
Services: Mixed performance:
- Public Administration, Defence & Other Services: GVA rose to 9.2% from 7.7%.
- Trade, Hotels, Transport & Communication: Improved to 6.6% from 4.5%.

Private Final Consumption Expenditure (PFCE): Grew by 6%, a recovery from 2.6% in Q2 last year but slower than 7.4% in Q1.
Gross Fixed Capital Formation: Slipped to 5.4% from 7.5% in Q1, indicating slowing capital investments.
Government Investment: Contracted by 15.4% in H1 FY 2024-25, impacting demand.

Weakened domestic demand has been a critical factor in the GDP slowdown, driven by reduced government spending and slower private investment.

Diverging Views on Growth Prospects:
- Optimism: Chief Economic Adviser V. Anantha Nageswaran termed the decline a "one-off" driven by temporary urban demand cooling.
- Caution: Economists like Kotak Mahindra Bank’s Upasna Bhardwaj warned of possible downward revisions to the FY 2024-25 growth estimate of 7.2%.
Sectoral Concerns:
- Industrial Slowdown: Subdued manufacturing and mining activity signal underlying weaknesses.
- Investment Shortfall: EY India’s D.K. Srivastava highlighted the fall in government investment as a critical factor affecting industrial sectors.

Industrial Deceleration:
- Core industrial sectors like manufacturing and mining have faltered.
- Slower infrastructure development due to reduced public investments.
Demand Weakness:
- Declining PFCE and reduced capital formation signal cooling demand across the economy.
Global Headwinds:
- Export markets remain weak, further impacting industrial and service growth.

To meet the projected growth target of 6.5%-7% for FY 2024-25, the economy will require a significant rebound in H2. Key factors to watch include:
- Festive Spending: Expected to boost consumption in Q3.
- Agricultural Recovery: Resilient rural demand may provide support.
- Policy Measures: Increased government expenditure and policy interventions to stimulate investment.
However, risks persist, including slow global recovery, domestic inflation pressures, and infrastructural bottlenecks.