India's Q2 GDP Growth Slows to 5.4%
The National Statistics Office (NSO) announced that India's GDP growth slowed to 5.4% in the second quarter of the fiscal year 2024-25 (July-September). This is a significant drop from the 8.1% growth rate recorded in the same quarter of the previous fiscal year.
The slowdown was primarily driven by sluggish growth in the Manufacturing (2.2%) and Mining & Quarrying (-0.1%) sectors. However, despite this, the real GVA (Gross Value Added) in the first half of the year (April-September) still managed to achieve a growth rate of 6.2%.
Key Highlights of the Q2 GDP Report
5.4% (down from 8.1% in Q2 FY2023-24)
5.6% (down from 7.7% in Q2 FY2023-24)
8.0% (up from 9.3% in Q2 FY2023-24)
8.1% (up from 9.3% in Q2 FY2023-24)
6.0% (up from 2.6% in Q2 FY2023-24)
Factors Contributing to the Slowdown
Increasing food inflation: Retail food inflation soared to 10.87% in October, leading to a decrease in purchasing power for consumers.
Higher interest rates have made it more expensive for businesses and individuals to borrow money, impacting investment and spending.
Wages have not kept pace with inflation, leading to a decline in real incomes and reduced consumer spending.
Outlook for the Remaining Quarters
While the Q2 GDP growth figures were disappointing, economists believe that there is potential for a stronger second half of the fiscal year. However, downside risks remain, and annual growth forecasts for the year may need to be revised downwards.
The government's spending growth and robust private consumption offer some hope for increased investments in the coming quarters. However, inflation remains a critical factor, posing risks to consumption, particularly impacting rural demand in the months ahead.
The performance of the agriculture sector, which saw a growth rate of 3.7% in Q2, could provide some support to rural demand in the coming months. However, the monsoon-related contraction in the mining sector is expected to be temporary, with a recovery likely ahead.