India GDP growth hits 7-quarter low of 5.4% in Q2 amid manufacturing slump

The Q2FY25 growth in manufacturing slowed to 2.2 per cent, significantly below the 7 per cent recorded in Q1 and 14.3 per cent a year earlier

India’s GDP (gross domestic product) growth for the July-September quarter dropped to a surprising 5.4 per cent, the lowest level since Q3FY23, according to data released by the National Statistics Office (NSO) on November 29. This figure represents a sharp fall from 8.1 per cent in the same period last year and 6.7 per cent in the April-June quarter (Q1FY25).

 

Economists had projected a moderation to 6.5 per cent, but the economy underperformed expectations, plunging to a near two-year low. In the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting last month, Governor Shaktikanta Das forecasted 7 per cent growth for Q2.    

GDP figure Q2FY25 (Source/MoSPI)

   

The unexpected slowdown is likely to increase pressure on the central bank, which has kept the benchmark repo rate steady amidst inflationary concerns.

 

Sectoral insights: Mixed performance across industries

 

According to the NSO, gross value added (GVA), a critical indicator of economic activity was at 5.6 per cent in Q2, down from 6.8 per cent in the preceding quarter. Meanwhile, the sectoral trends presented an uneven picture:

 

>Agriculture: Agricultural output improved, growing 3.5 per cent year-on-year (Y-o-Y), compared to 2 per cent in the previous quarter.

 

>Manufacturing: Growth in manufacturing slowed to 2.2 per cent, significantly below the 7 per cent recorded in Q1 and 14.3 per cent a year earlier.

 

>Mining: The mining sector contracted by 0.1 per cent, reversing robust growth of 11.1 per cent Y-o-Y and 7.2 per cent sequentially.

 

> Exports showed only modest growth, rising 2.8 per cent Y-o-Y, down from 5 per cent in the same period last year and 8.7 per cent in the previous quarter.

 

What caused the GDP slump in Q2 FY25?

  Economists have highlighted several factors influencing the disappointing numbers. Inflationary pressures played a significant role, with retail food inflation surging to 10.87 per cent in October, which reduced consumer spending capacity. Headline inflation also breached RBI’s 2-6 per cent comfort range, rising to 6.2 per cent. 

 

Corporate performance remained subdued, as leading firms posted their weakest quarterly results in over four years, affecting investment sentiments. Private consumption, accounting for 60 per cent of GDP, was sluggish due to high borrowing costs and stagnant real wage growth. Despite these challenges, rural demand showed some signs of recovery.

 

Domestic rating agency Icra had earlier estimated GDP growth at 6.5 per cent, citing factors like heavy monsoons and weaker corporate performance. India’s economic recovery faces headwinds as inflation persists and corporate earnings falter. Economists caution that these issues could further impact private consumption, a key growth driver.