Lower Q2 GDP growth a temporary blip

Context: 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.

Key points

·      
Sectors
that grew: Agriculture, Forestry, and
Fishing (3.5% growth) - Favourable monsoon in many regions improved
agricultural output. Increased rural demand contributed positively to the
sector.

Services Sector (7.1% growth) - Growth in trade, hotels, transport, and communication
services. Resilient demand in the IT and financial services sectors.

Construction (7.7% growth) - Continued public investment in infrastructure
projects. Urban housing demand played a role in sustaining growth.

Primary Sector (Agriculture and Mining – 3.9% growth)
- Modest recovery in mining due to
stabilization of commodity prices. Continued reliance on natural resources for
energy and raw materials.

·      
Sectors
that declined: Manufacturing
(2.2% growth) - Weak domestic consumption demand affected production
levels. Global economic slowdown reduced export demand.

Electricity, Gas, and Other Utilities (3.3% growth) - Slower industrial demand for electricity due to
subdued manufacturing activity.

Mining (-0.1% contraction) - High base effect from the previous year. Regulatory
challenges and limited investment in exploration.

Gross Fixed Capital Formation (GFCF – 5.4% growth) - Reduced government capital expenditure (down 14.7% in
April-October). Election-induced slowdown in public spending.

·      
Analysis of
GDP slowdown: Weak
Domestic Demand - Private consumption expenditure grew only 6%, reflecting
reduced household spending. High inflation, especially in food prices,
curtailed consumer purchasing power.

Decline in Exports - Net exports positively contributed to GDP, but overall export growth
slowed due to global headwinds.

Election-Related Delays - Public spending on infrastructure projects slowed during the election
period.

High Base Effect - Robust growth in the same quarter last year led to subdued comparative
growth.

Limited Manufacturing Growth - Industrial output
remained weak due to supply chain challenges and reduced global demand.