India’s GDP growth slips to 7-quarter low of 5.4% in Q2

New Delhi: India’s economic growth slumped to 5.4 per cent in July-September period, the slowest pace of expansion in seven quarters, as sluggish urban demands dragged manufacturing activities even though the farm sector witnessed an improvement, official data showed on Friday.

This is the third consecutive quarter of slowdown in the country's gross domestic product (GDP) growth. The GDP growth has slowed sharply after recording a robust expansion of 8.6% in the October-December period of last year. It fell to 7.8% in the January-March 2024 period and to 6.7% in the first quarter of the current financial year.

Chief Economic Advisor V Anantha Nageswaran attributed the Q2 GDP growth slowdown to poor performance of the manufacturing and mining sector.

Manufacturing sector growth slumped to a six-quarter low of 2.2% in July-September period from 7% recorded in the previous quarter. After posting a growth of 7.2% in April-June quarter, mining activities contracted in Q2, data released by the National Statistics Office (NSO) showed.

Nageswaran described the Q2 data as "disappointing". However, he also tried to reassure by saying that the situation is "not alarming."

However, agriculture sector growth accelerated to 3.5% in Q2 from 2% recorded in the previous quarter. Dharmakirti Joshi, Chief Economist, CRISIL, said improvement in agriculture sector growth likely supported rural demands during the quarter.

The July-September quarter GDP numbers are sharply lower than almost all estimates, including that of the Reserve Bank of India (RBI). In its latest monetary policy review, the RBI had pegged the Q2 GDP growth at 7%. Most private estimates had pegged it in the range of 6.5% to 7%.  

Sluggish investment was among the major drags on the Q2 numbers. Investment growth declined to 5.4% in Q2 from 7.5% recorded in the previous quarter.

“Private final consumption expenditure and gross fixed capital formation together account for a fall of 1.5% points which nearly fully explains the fall in the GDP growth from 6.7% in Q1 FY25 to 5.4% in Q2 FY25,” said D.K. Srivastava, Chief Policy Advisor, EY India.

The central government’s capital expenditure in the first half of the current financial year was 15.4% lower when compared with the corresponding period of the last year. The lower government capex, which was mainly due to the Lok Sabha election, has affected the demand for various industrial and infrastructure related sectors.

Services, the largest component of the country’s GDP, witnessed slight moderation in growth. It declined from 7.2% in Q1 to 7.1% in Q2. With 9.2% year-on-year growth, the public administration & other services segment drove this sectoral growth. “This could be due to the impact of new age services which are beginning to gain some ground,” said Devendra Kumar Pant, Chief Economist at India Ratings and Research.

The nominal GDP or the GDP at current prices growth slowed to 8%, gross value added (GVA) grew by 5.6% during the quarter under review.  Nominal GDP in Q2 of 2024-25 is estimated at Rs 76.60 lakh crore, against Rs 70.90 lakh crore in Q2 of 2023-24. Real GDP or GDP at constant prices in Q2 is estimated at Rs 44.10 lakh crore, against Rs 41.86 lakh crore in Q2 of 2023-24.

In actual rupee terms the incremental growth in industry is merely Rs 42,515 crore in the second quarter of this fiscal against Rs 1.4 lakh crore growth in the corresponding period of the last year. This indicates a hit of almost Rs 1 lakh crore in incremental terms in overall industry, said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.