INDIA’S GDP GROWTH IN Q2 FY25
India’s economic growth in Q2 FY25 slowed to 5.4%, marking a seven-quarter low and reflecting challenges across multiple sectors. This decline comes amidst global economic uncertainties, weak domestic demand, and election-induced delays in government spending. While sectors like agriculture, services, and construction showed resilience, others like manufacturing, mining, and electricity faced significant hurdles. Understanding the performance of each sector and addressing the underlying issues is critical to sustaining long-term economic growth and meeting the projected targets for FY25.
SECTORS THAT GREW
1. Agriculture, Forestry, and Fishing (3.5% growth)
• Reasons for Growth:
• Favorable monsoon in many regions improved agricultural output.
• Increased rural demand contributed positively to the sector.
2. Services Sector (7.1% growth)
• Key Drivers:
• Growth in trade, hotels, transport, and communication services.
• Resilient demand in the IT and financial services sectors.
3. Construction (7.7% growth)
• Reasons for Growth:
• Continued public investment in infrastructure projects.
• Urban housing demand played a role in sustaining growth.
4. Primary Sector (Agriculture and Mining – 3.9% growth)
• Reasons for Growth:
• Modest recovery in mining due to stabilization of commodity prices.
• Continued reliance on natural resources for energy and raw materials.
SECTORS THAT DECLINED
1. Manufacturing (2.2% growth)
• Reasons for Decline:
• Weak domestic consumption demand affected production levels.
• Global economic slowdown reduced export demand.
2. Electricity, Gas, and Other Utilities (3.3% growth)
• Reasons for Decline:
• Slower industrial demand for electricity due to subdued manufacturing activity.
3. Mining (-0.1% contraction)
• Reasons for Decline:
• High base effect from the previous year.
• Regulatory challenges and limited investment in exploration.
4. Gross Fixed Capital Formation (GFCF – 5.4% growth)
• Reasons for Decline:
• Reduced government capital expenditure (down 14.7% in April-October).
• Election-induced slowdown in public spending.
ANALYSIS OF GDP SLOWDOWN
1. Weak Domestic Demand:
• Private consumption expenditure grew only 6%, reflecting reduced household spending.
• High inflation, especially in food prices, curtailed consumer purchasing power.
2. Decline in Exports:
• Net exports positively contributed to GDP, but overall export growth slowed due to global headwinds.
3. Election-Related Delays:
• Public spending on infrastructure projects slowed during the election period.
4. High Base Effect:
• Strong growth in the same quarter last year led to subdued comparative growth.
5. Limited Manufacturing Growth:
• Industrial output remained weak due to supply chain challenges and reduced global demand.
FAQs
1. Why did India’s GDP growth slow to 5.4% in Q2 FY25?
• The slowdown is due to weak domestic demand, reduced government spending, and limited industrial growth. Additionally, inflation and high base effects contributed to lower growth.
2. Which sectors performed well and why?
• Agriculture, services, construction, and primary sectors grew due to favorable weather, infrastructure investments, and rural demand.
3. Why did the manufacturing sector grow so slowly?
• Weak consumer demand and declining exports, coupled with high input costs, affected manufacturing growth.
4. What factors led to the decline in Gross Fixed Capital Formation (GFCF)?
• GFCF declined due to lower government capital spending during the election period and procedural delays in infrastructure projects.
5. How does inflation impact economic growth?
• High inflation reduces household purchasing power, leading to lower consumption demand, which is a critical component of GDP.
6. What steps can the government take to address the slowdown?
• Increase public spending on infrastructure projects.
• Reduce procedural delays in investments.
• Implement targeted fiscal and monetary policies to stimulate demand.
7. Is the 7.2% growth target for FY25 achievable?
• Achieving 7.2% growth seems unlikely unless GDP growth in H2 exceeds 8%, which requires significant policy intervention and improved global economic conditions.
8. What are the prospects for H2 FY25?
• A festive season demand surge, coupled with possible rate cuts by the RBI, could stimulate growth. However, global uncertainties and high inflation remain risks.
