India’s Gross Domestic Product (GDP) growth has decelerated to 5.4% in the July-September quarter of 2024, marking the slowest expansion in seven quarters. This downturn is primarily attributed to subdued manufacturing activity and weakened consumer demand.
In Short
- India’s GDP growth slows to 5.4% in the July-September quarter
- GVA growth slows to 5.6%, below the forecast of 6.5%
- Manufacturing sector growth declines to 2.2%
India Sectoral Performance
Manufacturing: The manufacturing sector’s growth declined sharply to 2.2% from 7% in the previous quarter, indicating a significant slowdown in industrial output.
Mining and Quarrying: This sector experienced a marginal contraction of 0.1%, reversing the 7.2% growth observed in the prior quarter.
Agriculture: Agricultural growth improved to 3.5%, up from 2% in the preceding quarter, suggesting a positive trend in the agrarian economy.
Construction: The construction sector grew by 7.7%, down from 10.5% in the previous quarter, reflecting a deceleration in infrastructure development.
Contributing Factors
Consumer Demand: Elevated food prices and high borrowing costs have dampened urban consumption, leading to reduced spending on durable and non-durable goods.
Government Expenditure: A reduction in public sector spending, particularly during the initial months of the fiscal year, has further constrained economic growth.
Analyst Insights
Economists suggest that the slowdown is partly due to cyclical factors, including the monsoon season and election-related spending cuts. Aditi Gupta, an economist at Bank of Baroda, notes that the GDP growth reflects a cyclical slowdown compounded by reduced government spending due to general elections.
Future Outlook
Despite the current slowdown, there is optimism for a rebound in the latter half of the fiscal year. Factors such as the festive season, improved rural demand, and increased government expenditure are expected to stimulate economic activity. The Reserve Bank of India (RBI) has maintained its GDP growth forecast at 7.2% for the current fiscal year, indicating confidence in a potential recovery.
Global Context
India remains one of the fastest-growing major economies globally, despite the recent deceleration. However, external factors such as global crude oil prices and geopolitical tensions could influence future growth trajectories. Maintaining low crude oil prices is crucial for sustaining economic momentum, given India’s reliance on oil imports.
Conclusion
The 5.4% GDP growth in Q2 FY25 underscores the challenges facing India’s economy, including weakened consumer demand and sector-specific slowdowns. Nonetheless, anticipated improvements in consumption patterns and strategic government interventions are expected to support a gradual recovery in the upcoming quarters.
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