India Q2 FY25 GDP Growth Data
The GDP growth of India for the July-September quarter of Financial Year 2024-25, Q2 FY25, was 5.4%, pointing to the slowest pace in five quarters. Coming after a strong 6.7% growth in the April-June quarter, Q1 FY25, the slowdown has rung alarm bells on the trajectory of the Indian economy. But government officials are not yet losing hope and say the full-year GDP growth target of 6.5%-7% is achievable.
Key Highlights of the Q2 FY25 GDP Data
- GDP Growth: Slipped to 5.4% in Q2 FY25 from 6.7% in Q1 FY25.
- Government Expenditure: The curbing of spending by the government during the general elections was a major factor in the damping of economic activity.
- Economic Outlook: CEA V. Anantha Nageswaran termed the growth number "disappointing" but said it is not a worrying trend.
- Industry Performance: Mixed performance across industries, some of which showed resilience in headwinds.
Economic Slowdown Analysis
Deterioration Factors
- Decreased Public Spending: The temporary decrease in government spending during the general election period slowed down infrastructure projects and activities in the public sector.
- Core Sector Performance: The core sector growth inched up to 3.1% in October 2024 from 2.4% in September, but several industries, including electricity generation and cement production, remained weak.
- Global Economic Challenges: High interest rates in developed markets and sluggish global demand also impacted exports and overall economic activity.
Resilient Sectors
While the slowdown affected several industries, some sectors demonstrated resilience:
- Steel Production: Improved growth in October 2024, signaling stability in construction-related activity.
- Private Consumption: Continued to support growth, albeit at a slower pace.
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Government's Optimism: Growth Momentum Intact
Although the Q2 performance was underwhelming, the Indian government is confident about achieving the annual growth target. The country's Chief Economic Advisor said the key drivers of the economy stay strong: - Private Investments: Sustained interest in infrastructure and manufacturing is likely to support growth in the near term.
- Rural Demand: Improvement in agricultural output is likely to revive rural consumption.
- Policy Measures: The government's commitment toward fiscal prudence with the much-needed investments in key growth-supporting areas is likely to trigger growth.
Expert Insights: Mixed Reactions
- Mr. Rahul Agrawal, Senior Economist, ICRA Limited:
"The year-on-year growth in core sector improved to 3.1% in the month of October 2024, while muted performance in Electricity Generation and Cement output took the sheen off the overall performance. While short-term challenges continue, the medium-term outlook for India's economy continues to be bright."
Outlook for FY25
This Q2 slowdown raises a question over the sustainability of the economic recovery of India. However, according to all policymakers and experts, structural strengths, including a strong domestic market and continuous policy support, will help the economy regain momentum.
- Q3 FY25 Expectations: The growth rate will rebound in the upcoming quarters with a probable increase in government expenditure post-elections and also an improvement in private sector activities.
- Full-Year Growth Target: The government stands firm on its projection to a 6.5-7% growth rate so long as domestic consumption and investment remain stable.
Conclusion
India's Q2 FY25 GDP data reflects a temporary dip in growth, largely influenced by external and cyclical factors. Although the 5.4% growth rate is indicative of challenges in the global and domestic economy, certain resilience shown by sectors and proactive approach from the government instill confidence for better performance in the second half of the fiscal year. With targeted investments and policy interventions, India remains well-positioned to achieve its growth ambitions for FY25.