India’s GDP growth for the July-September quarter (Q2 of FY25) slowed to 5.4 per cent, reflecting 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).

This was disappointing, even though moderation has been predicted for some time, with some economists maintaining a dim view of a recovery in the second half of the financial year. Coming on the back of retail inflation which has surged to 6.2 per cent, this was seen as a setback.

Growth Outlook

However, Chief Economic Advisor V Anantha Nageswaran rejected dire predictions, maintaining that while the Q2 number is disappointing, it is “just a one-off”.

“The GDP growth print of 5.4 per cent is on the lower side. It is disappointing, but it is not an alarming situation,” Nageswaran said. He said it is too soon to say that a lower range of growth estimates (6.5-7 per cent) is in danger. “We will go back and take stock of the full-year number,” he added. 

Economists attribute the low growth number to a slowdown in manufacturing and consumption.

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said that the sharply lower-than-expected GDP figures reflect the highly disappointing corporate earnings data. “The manufacturing sector appears to have taken the maximum beating,” she said.

DK Srivastava, Chief Policy Advisor at EY India, said two domestic demand components namely private final consumption expenditure and gross fixed capital formation together account for a fall of 1.5 per cent points which nearly fully explains the fall in the GDP growth to 5.4 per cent 6.7 per cent.

Although Nageswaran counted positives including improved rural demand and growing order books of companies which will have a bearing on the full fiscal numbers, most economists had a different view.

“A sharper than expected growth slowdown in Q2 has tilted risks to our growth outlook of 6.8 per cent for the current fiscal downwards,” said Dharmakirti Joshi, Chief Economist, CRISIL.

Shreya Sodhani, Regional Economist at Barclays said she had already downgraded the forecast.

“Incorporating today’s numbers, we now lower our FY24-25 growth forecast to 6.5 per cent from 6.8 per cent,” Sodhani said.

However, she thought that the growth slowdown was likely to be short-term. While high-frequency data for economic activity reflect some improvement in festival-loaded Q4 24 vs Q3, the data signals are mixed at best.

According to Rumki Majumdar, Economist, Deloitte India, export growth decelerated to 2.8 per cent in Q2 FY25, largely driven by declining petroleum product exports and the ongoing impact of global uncertainties.

However, robust performance in high-end manufacturing exports, such as electronics, engineering goods, pharmaceuticals, and chemicals, provided a much-needed cushion to the overall figures.

“We believe this trend will continue and India’s trade diversification towards higher value add manufacturing goods will help India tide through global uncertainties as global demand for such goods will remain high,” she said.

Fiscal Deficit and Core Sector

With continuous contraction in capital expenditure and lower gross tax collection, the fiscal deficit touched 46.5 per cent of Budget Estimates (BE) during the first seven months (April-October).

Meanwhile, the eight Core sector industries’ output grew 3.1 per cent in October, higher than the revised output growth of 2.4 per cent in September. Six of the eight Core industries’ output was in positive territory. Both Cement and Steel saw robust output growth at 3.3 per cent and 4.2 per cent respectively on the back of a pick up in Government spending.

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