India’s economic growth decelerated sharply in the July-September quarter of FY25, with GDP growth falling to 5.4%, marking an 18-month low. This figure, released by the National Statistics Office (NSO) on Friday, was significantly below the Reuters poll estimate of 6.5%. It also represented a notable decline from the 6.7% recorded in the April-June quarter and the 8.1% growth seen in the same period last year. The slowdown reflects underlying challenges in both domestic and global economic environments, which have raised concerns about the sustainability of India’s recovery.
The Gross Value Added (GVA), a measure of economic activity across various sectors, grew by 5.6%, also missing the forecast of 6.5%. This was a notable drop from the 7.7% year-on-year growth and 6.8% growth in the previous quarter. GVA figures, which exclude the effects of taxes and subsidies, provide a more sector-specific view of the economy. The weaker-than-expected numbers across GDP and GVA indicate that the Indian economy is facing headwinds across multiple fronts, with some sectors faring worse than others.
Agriculture was one of the few bright spots in this quarter, showing a growth of 3.5%, an improvement from the 2% recorded in the previous quarter and the 1.7% a year ago. Favorable monsoon conditions and increased sowing activities contributed to the recovery, which could help in boosting rural demand in the coming months. However, the mining sector contracted by -0.1%, reversing the robust 11.1% growth seen in the same period last year and 7.2% in Q1FY25. This decline in mining reflects subdued global demand and ongoing domestic regulatory challenges, which have dampened output and investment in the sector.
The manufacturing sector, often considered the backbone of industrial activity, saw its growth fall to just 2.2%, a significant drop from 14.3% in the same quarter last year and 7% in the previous quarter. The slowdown in manufacturing highlights weak demand, rising costs, and inventory adjustments as key issues weighing on the sector’s performance. This has raised concerns about the impact on industrial recovery and job creation, particularly in a labor-intensive industry. The electricity, gas, and water supply segment, another important indicator of industrial and commercial activity, saw its growth moderate to 3.3%, compared to 10.5% in the same period last year and 10.4% sequentially.
The construction sector grew by 7.7% during the quarter, lower than the 13.6% growth achieved a year earlier and 10.5% in Q1FY25. Although construction remains a vital growth driver, rising material costs and delays in project execution have dampened its momentum. The trade, hotels, and transport sector grew by 6%, improving from 4.5% in the same quarter last year and 5.7% in the previous quarter. The recovery in this segment reflects increased mobility and economic reopening, but the growth remains below pre-pandemic levels, suggesting that demand in certain sub-sectors is yet to fully recover.
Financial, real estate, and professional services posted growth of 6.7%, a slight improvement over the 6.2% recorded in the same period last year, though lower than the 7.1% in the preceding quarter. The sector continues to be supported by increased credit demand, but higher borrowing costs have somewhat tempered its growth. Public administration and other services, including government spending, grew by 9.2%, up from 7.7% a year earlier but marginally lower than the 9.5% recorded in Q1FY25. While government expenditure remains a key pillar of support for the economy, its sequential slowdown raises questions about sustaining momentum without substantial private sector contributions.
The broader slowdown in GDP growth reflects several key challenges. Private consumption, which constitutes nearly 60% of the economy, has been impacted by high inflation and cautious consumer sentiment, leading to subdued demand for discretionary goods and services. Industrial activity has also faced significant hurdles, with weaker investment activity and supply chain disruptions adding to the challenges. On the global front, a slowing global economy, geopolitical tensions, and elevated crude oil prices have created additional headwinds for India’s export-driven sectors.
Experts have expressed concerns about the economic outlook but remain cautiously optimistic about the second half of the fiscal year. Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers, noted that the headline GDP numbers were affected by statistical discrepancies. “India’s GDP growth in Q2 stood at 5.4%, falling below our projection of 6.7% and the street’s estimate of 6.5%. This weakness in the numbers was largely due to discrepancies; net of these, GDP growth remained at a healthy 7.5%,” he stated. Hajra emphasized that the overall economic performance remains robust despite the slowdown, with full-year GDP growth still projected at 7%.
Looking ahead, Hajra highlighted several factors that could support economic growth in the second half of FY25. He expects agriculture to continue driving rural demand, aided by favorable monsoon conditions. Increased capital expenditure (capex) by both central and state governments is also anticipated to boost construction and allied sectors. The upcoming festive season is likely to spur consumer spending, which could help revive demand in sectors like trade, transport, and retail. Moreover, the government’s focus on infrastructure development is expected to sustain investment momentum.
Despite these positives, sustaining long-term growth will require addressing some of the structural challenges that have hindered economic performance. Revitalizing private investment, resolving issues in the manufacturing and mining sectors, and enhancing global competitiveness will be critical for achieving higher growth rates. Policymakers will also need to carefully balance fiscal and monetary measures to support the economy while ensuring financial stability. The Reserve Bank of India (RBI), which has maintained a cautious stance in recent months, may have to adopt a more accommodative approach if inflationary pressures ease in the coming quarters.
In conclusion, India’s GDP growth for Q2FY25, at 5.4%, reflects an economy grappling with multiple challenges but not devoid of opportunities for recovery. The mixed performance across sectors underscores the need for targeted interventions to revitalize key growth drivers while leveraging strengths in agriculture and government spending. As the economy navigates a complex domestic and global environment, sustained growth will require a concerted effort from all stakeholders to address structural bottlenecks and build resilience for the future.
