 growth slowed down to 5.4% during the second quarter of the financial year 2024-25.){kind=link}
India’s Gross Domestic Product (GDP) growth slowed down to 5.4% during the second quarter of the financial year 2024-25. It is due to the falling growth rate in manufacturing, consumption, and mining.
In comparison, the GDP growth rate was 8.1% in the second quarter of 2023-24, according to government data released by the National Statistics Office (NSO), Ministry of Statistics and Program Implementation (MoSPI).
Thus, India’s GDP growth slowed significantly from 8.1% to 5.4% in Q2 FY25, driven by weaker consumption and adverse weather impacts on key sectors. The slowdown aligns with economist predictions of 6.5% growth, citing factors like subdued urban demand, reduced government spending, and disruptions in mining and electricity. Rising food inflation, higher borrowing costs, and stagnant real wages contributed to reduced consumption. The RBI has maintained its FY25 growth forecast at 7.2%.
The GDP data aligns with the predictions as the survey of Seventeen economists had projected a median GDP growth of 6.5%, citing factors such as subdued urban demand, decreased government expenditure, and disruptions in the mining and electricity sectors due to heavy rains. Similarly, another poll also predicted GDP growth at 6.5%, falling short of the Reserve Bank of India’s (RBI) forecast of 7%.
Manufacturing (2.2%) and Mining & Quarrying (-0.1%) sectors reported a sluggish Q2 whereas Agriculture and Allied sector has bounced back by registering a growth rate of 3.5% in Q2 of FY 2024-25 after sub-optimal growth rates ranging from 0.4% to 2.0%, observed during previous four quarters.
Main Reasons Behind Economic Slowdown include rising food inflation higher borrowing costs, and stagnating real wage growth, which collectively dampened urban private consumption.
In October, retail food inflation surged to 10.87% which reduced the purchasing power of the people. In the July-September quarter, the corporate earnings also dwindled as leading Indian companies reported their weakest performance in four years in this quarter.
Despite these challenges, the Reserve Bank of India (RBI) has retained its GDP growth projection for FY25 at 7.2%, down from 8.2% in the previous fiscal year.
There are also certain sectors that witnessed significant growth: Tertiary sector has observed a growth rate of 7.1% in Q2 of FY 2024-25, as compared to the growth rate of 6.0% in Q2 of the previous financial year. In particular, Trade, Hotels, Transport, Communication & Services related to Broadcasting has seen a growth rate of 6.0% in Q2 of FY 2024-25 over the growth rate of 4.5% in Q2, 2023-24.
In the Construction sector, sustained domestic consumption of finished steel has resulted 7.7% and 9.1% growth rates respectively in Q2 and H1 of FY 2024-25, the data said.
Causes for India’s GDP to fall in Q2 2024-25: Manufacturing, and mining tanked the most among all the sectors. The Gross Value Added (GVA) of manufacturing fell to just 2.2% from 14.3% in the second quarter of last year.
The mining and quarrying sector was the only one which registered a negative GVA rate this time of -0.1%. It grew 11.1% last year.
To top off all the distresses, the growth rate of electricity, gas, water supply, and other utility services also fell drastically, reflecting a huge fall in consumption growth. It fell from 10.4% last year to just 3.3% this year. Even construction fell significantly from 13.6% growth last time to just 7.7% this time.
Just like the GDP, the Real GVA also slowed down to 5.6% in the second quarter of 2024-25, as compared to 7.7% in 2023-24. Nominal GVA also dropped to 8.1% this time compared to 9.3% during the same quarter of the previous year.
The agriculture, livestock, forestry, and fishing sector did however, show positive signs. It saw its growth rate more than double, reaching 3.5% this quarter, as compared to just 1.7% last year.
India’s GDP growth slowed to 5.4% in Q2 FY25, marking an eight-quarter low and raising concerns about the economic outlook. Economists are revising growth forecasts downward, with Goldman Sachs projecting 6.4% for FY25. Rising inflation, higher borrowing costs, and weak corporate earnings contributed to the slowdown. It is a thought that Centre plans to revise GDP Base Year to 2022-23 In February 2026.
As per a source, it has put the Reserve Bank of India (RBI) under pressure to consider rate cuts in December. The GDP shocker comes amid weaker consumption and adverse weather impacts on key sectors. This marked the economy growing at the slowest pace in almost two years, as the July-September period marked an 8-quarter low. The question arises- Will India’s Q2 GDP shocker push RBI to cut rates in December?
The recent GDP data is expected to lead economists to further lower their growth projections for the fiscal year ending March 2025. Investment banks, including Goldman Sachs, have already revised their forecasts down to as low as 6.4%.
These figures will likely increase pressure on the RBI, which has maintained a full-year growth estimate of 7.2%, to consider a rate cut. The RBI’s next monetary policy announcement is set for December 6.
RBI Governor Shaktikant Das has warned that a rate cut at this stage would be “very risky” given inflation risks. However, experts feel that the GDP slowdown may change the narrative for monetary policy, as India’s growth story seems to be slowing down. Add falling wages, and diminishing company profits in Q2 to the list of woes, it would be interesting to see what the Central Bank decides in its next MPC meeting.
The sharper-than-anticipated slowdown in India’s growth during the July-September quarter has increased speculation about a possible rate cut by the RBI in the December 6 meeting. However, this remains unlikely as a base case. Bloomberg Economics expects the RBI to maintain the current rates, given Governor Shaktikanta Das’ recent aggressive remarks.
In fact, in October, retail food inflation surged to 10.87% which reduced the purchasing power of the people. In the July-September quarter, the corporate earnings also dwindled as leading Indian companies reported their weakest performance in four years in this quarter.
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