India’s GDP Growth Slows to 5.4% in Q2 FY25: A Cause for Concern: India has reported a decimal 5.4% GDP growth for the second quarter of FY25, the slowest pace in nearly two years. The latest GDP figures tell a sobering story. Growth has declined for the third consecutive quarter (Q3), so what’s happening to India’s growth story?
In FY2, in Q2 of F525, GDP growth rate came in at just 5.4%. That’s the lowest in nearly 2 years, a sharp drop from 6.7% in Q1. It’s even more shocking; it’s a far cry from the 8.1% growth recorded. We saw it during the same period last year. Economists had anticipated a slight slowdown, but the extent of the decline has caught everyone off guard.
Also Read: GQG Shares Fall 13% After Analyst Downgrade Following Adani Group Indictment
These figures are disappointing because of RBI’s previous monetary policy. Governor Shakti Kadas was confident of a 7% growth before RBI brought it down to 6.8% real GDP growth for 2425, projected at 7.2%, with Q2 at 7%. Q3 at 7.4% and Q4 at 7.4%.
To understand this GDP slowdown
This declining growth raises questions about the resilience of India’s economic recovery. Even the Reserve Bank of India (RBI), which had initially projected a 7.2% growth for FY25, recently revised its forecast to 6.8%. Q2 growth was initially pegged at 7%, making the actual 5.4% figure a sobering reality check.
There are four key engines of growth:
India’s economic slowdown can be attributed to three of the four key growth drivers—private consumption, private investment, and exports—which have been underperforming:
- Private consumption, especially among the middle class and urban households, has weakened, likely due to persistent inflation and high borrowing costs.
- Private investment remains sluggish, with no significant uptick in capital expenditure.
- Exports are distressing amid global economic headwinds, trade tensions, and slowing global demand.
The middle class and urban private consumption have taken a hit. This could mainly be because of high inflation or high borrowing rates. Only government spending has grown, but even that is much lower than last year’s. Levels in the first half on the industrial front, manufacturing has taken a hit driven by slowing Urban demand and poor exports Manufacturing recorded only 2.2% growth in Q2.
Also Read: Hardik Pandya Emotional Interview on Ishan Kishan Leaving Mumbai Indians
Manufacturing and Industrial Setbacks
Mining and power generation have underperformed due to an unusually wet monsoon further dampening growth. The only promising sector has been agriculture, which has shown consistent growth. Amid the gloom, there’s a glimmer of hope.
Agriculture Emerges as a Bright Spot
Agriculture has emerged as a bright spot, recording a 3.5% growth in Q2, up from 2% in Q1, thanks to good rains and strong sowing. This agricultural recovery is crucial; it is expected to ease food inflation, giving the Reserve Bank of India room to lower interest rates.
Challenges Ahead
Despite agriculture’s strong performance, significant challenges remain:
- Urban consumption continues to decelerate, with no immediate signs of recovery.
- Exports are to remain weak amid global economic uncertainties and rising trade tensions.
- A weakening rupee poses risks of higher inflationary pressures.
- Private sector capital expenditure shows little momentum for revival.
- State government spending has been delayed due to financial strains, adding to the economic woes.
Revised Growth Projections
Economists are revisiting their growth forecasts in light of these headwinds:
- MK Research has lowered its FY25 growth estimate to 6%, down from 6.5%.
- Crisil has revised its projection to 6.8%.
To meet the government’s budgeted nominal GDP growth target of 10.5%, the economy would need to grow by over 12% in the second half of FY25—a feat that appears increasingly unlikely given current conditions.
The economy needs to grow by over 12% in the second half; given the current head, that seems increasingly unlikely. India’s growth story is far from over, but the current slowdown signals the need for recalibration with rural demand as a silver lining. Global uncertainties loom large, and 2025 could be a defining year.
