India's GDP growth for the July-September quarter has sharply decelerated to 5.4%, marking an 18-month low, according to data released by the National Statistics Office (NSO). This figure is significantly below both the Reuters poll estimate of 6.5% and the previous quarter's growth of 6.7%. It also represents a substantial drop from the 8.1% growth recorded in the same period last year, raising concerns about the robustness of India’s economic recovery amidst global and domestic challenges.
The Gross Value Added (GVA) metric, which captures economic activity across various sectors, grew by 5.6%, falling short of the 6.5% forecast. This marks a notable slowdown compared to the 7.7% year-on-year growth in the same quarter last year and 6.8% in the April-June quarter.
Key sectors contributing to the slowdown include manufacturing, which saw growth plummet to a mere 2.2%, a dramatic decline from 14.3% during the same quarter in 2023 and 7% in the preceding quarter. The electricity sector, which had been a consistent performer, also slowed significantly, registering 3.3% growth compared to 10.5% year-on-year and 10.4% in Q1FY25. Mining contracted by 1.2%, reflecting persistent challenges in the sector.
Construction, a crucial driver of economic activity and employment, registered a 7.7% growth rate, significantly lower than the 13.6% growth recorded a year ago and 10.5% in Q1FY25. However, trade, hotels, and transport showed some resilience, improving marginally to 6% growth compared to 4.5% in the same period last year and 5.7% sequentially.
The financial, real estate, and professional services sector recorded a modest uptick, growing at 6.7%, slightly better than the 6.2% growth in the corresponding quarter of the previous year but below the 7.1% growth seen in the first quarter of FY25. Meanwhile, public administration and other services, a proxy for government spending, showed robust growth of 9.2%, an improvement from 7.7% a year ago, albeit slightly down from 9.5% in Q1FY25.
Analysts attribute this deceleration to subdued private consumption, tepid industrial output, and lingering effects of global uncertainties such as fluctuating commodity prices and weakening export demand. The manufacturing sector’s stark decline is particularly worrisome as it reflects deeper issues in production and demand. The mining sector's contraction further highlights ongoing structural challenges.
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers pointed to discrepancies in the GDP computation as a factor influencing the lower-than-expected numbers. “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%. However, net of these discrepancies, GDP growth remained at a healthy 7.5%.”
Despite the weaker-than-expected numbers, Hajra maintained a cautiously optimistic outlook for the full fiscal year, projecting an overall growth rate of 7%, implying a strong 7.9% growth in the second half of the fiscal year. He expressed confidence that continued strength in agriculture, supported by favorable monsoon conditions, would boost rural demand. Additionally, increased capital expenditure by both central and state governments is expected to act as a significant growth driver in the coming quarters.
However, concerns remain regarding the sustainability of the recovery. While agriculture and public spending have provided some cushion, the muted momentum in private consumption and industrial activity suggests that more structural interventions may be necessary to sustain growth. With the global economic environment remaining uncertain, bolstered by geopolitical tensions and inflationary pressures, India’s policymakers will likely face mounting challenges in maintaining a stable growth trajectory.
Looking ahead, analysts and policymakers will be closely monitoring key economic indicators in the second half of FY25, particularly rural demand, private investment, and export performance. Efforts to address bottlenecks in manufacturing and mining, alongside targeted fiscal measures to stimulate consumption and investment, will be critical for ensuring that India’s growth trajectory aligns with its medium-term economic goals.
