India's Economic Growth Slows to 5.4%, Raising Concerns About 7% Target
India's economic growth slowed to a seven-quarter low of 5.4% in the second quarter of the fiscal year, raising concerns about the government's 7% growth target for the year. While analysts expect growth to revive in the second half, they now predict a full-year growth of around 6.5% to 6.8%.
Chief economic advisor V Anantha Nageswaran downplayed the 5.4% figure, calling it a "one-off number" and pointing to improved rural demand and growing order books of companies. He stressed that it's too early to extrapolate too much on the full fiscal GDP growth figure, as these are just first estimates.
The Economic Survey had pegged GDP growth for FY25 in a range of 6.5% to 7%. However, analysts are now revising their estimates downwards. Upasna Bhardwaj of Kotak Mahindra Bank expects growth to be around 100bps lower than the RBI's estimate of 7.2%. Madan Sabnavis of Bank of Baroda expects growth to average 6.6% to 6.8%.
The slowdown in growth was largely due to a sharp deceleration in expansion in manufacturing and mining and quarrying. Growth in mining and quarrying contracted by 0.1% in the second quarter, while the growth in manufacturing slipped to 2.2%.
From the demand side, both consumption and investment demand slowed down in the second quarter. While private consumption growth slowed to 6%, government consumption expenditure was 4.4%. Investments grew by just 5.4% in the second quarter versus 7.5% in the previous quarter.
However, Nageswaran believes that capex growth could see an uptick in the remaining four months of the fiscal year. He attributed the slowdown in capex to excessive rainfall and uncertainties due to the election season.
Overall, the economic outlook for India remains uncertain. While analysts expect growth to revive in the second half, they are revising their full-year growth estimates downwards. The government's ability to boost capex and revive private investment will be crucial in achieving its 7% growth target.