Worrying retardation
India's economic growth has slowed significantly in the second quarter of FY 2024-25. The GDP expanded merely 5.4 per cent—the slowest pace in seven quarters—during this period. The fresh NSO data represents a sharp decline from the 6.7 per cent growth seen in the first quarter of the year and a marked drop from the 8.1 per cent growth recorded in the same quarter last year. The Gross Value Added (GVA)—another crucial parameter of economic performance—also decelerated to 5.8 per cent from 6.8 per cent in the preceding quarter. This is, perhaps, indicative of a broad-based slowdown.
The manufacturing sector, considered as a critical pillar of the economy, has seen growth plummet to a mere 2.2 per cent, compared to an impressive 14.3 per cent expansion in the corresponding period last year. Mining and quarrying recorded a contraction of 0.1 per cent—a stark reversal from the double-digit growth of 11.1 per cent seen a year ago. The construction sector, while still growing, has also lost momentum, expanding by 7.7 per cent, which is nearly half of the 13.6 per cent growth registered in the same quarter of the previous fiscal year. On the positive side, agriculture showed signs of recovery. The sector grew by 3.5 per cent compared to 1.7 per cent in the same quarter last year, which is believed to be powered by improved Kharif output. Similarly, the services sector held up relatively well, with areas like public administration, defence, and other services expanding by 9.2 per cent. Trade, hotels, transport, and communication services also grew by 6.6 per cent. Private consumption, which is one of the primary pillars of India’s growth, grew by 6 per cent in the second quarter—better than the 2.6 per cent seen a year ago. However, this still marks a slowdown from the first quarter, when consumption rose by 7.4 per cent. Investment activity, measured by gross fixed capital formation, also moderated to a significant extent, growing by 5.4 per cent—the slowest pace in six quarters.
The ongoing economic slowdown is being attributed to several factors. Sluggish urban consumption, largely due to stagnant real incomes and high interest rates, has played a major role in this regard. The manufacturing sector has been hit hard by rising costs and weak demand, while concentrated and erratic rainfall patterns have disrupted production in certain other industries. Meanwhile, high inflation has eaten into household budgets—leading to a decrease in discretionary spending.
Experts are divided on the outlook for the remainder of the fiscal year. Some believe that increased government spending, particularly on infrastructure, and a likely boost from festive season demand could help drive growth in the coming quarters. Rural demand is also expected to improve, supported by a better agricultural output. However, challenges such as persistently high interest rates, global uncertainties, and a subdued private investment climate remain significant risks. The Reserve Bank of India (RBI) has maintained its growth forecast of 7.2 per cent for the current fiscal year, but achieving this target now appears challenging. Private economists have already revised their projections downward, suggesting that full-year growth could fall closer to 6.5 per cent. Policymakers may face pressure to adjust monetary policy in the months ahead, especially if inflation begins to ease.
In the end, the broader slowdown in manufacturing and private consumption, among other things, is a cause for concern. The latest data makes it clear that India’s growth trajectory, while still robust compared to many global peers, is far from immune to domestic and international headwinds.
