Consumption slows GDP growth in Q2 FY25 to 5.4%: government data
STORIES, ANALYSES, EXPERT VIEWS
Government data released Friday indicated India’s economic growth slowed to 5.4% in the second quarter of FY25, marking a decline from 8.1% during the same period last year and 6.7% in the April-June quarter. The moderation aligns with predictions by economists citing weaker consumption and adverse weather impacts on key sectors.
An Economic Times survey of 17 economists had projected a median Gross Domestic Product (GDP) growth of 6.5%, attributing the decline to muted urban demand, reduced government spending, and disruptions caused by heavy rains in mining and electricity sectors. A separate poll by Reuters also anticipated GDP growth at 6.5%, below the Reserve Bank of India’s (RBI) estimate of 7%.
Gross Value Added (GVA) recorded a growth rate of 6.2 percent: Despite sluggish growth in Q2 of FY 2024-25, real GVA in H1 (April-September) has recorded a growth rate of 6.2%.
Gross Value Added (GVA), a measure of economic activity, was forecast to expand at a slower 6.3% rate, compared to 6.8% in the previous quarter, signaling subdued momentum across sectors. In this quarter, real GVA has grown by 5.6% over the growth rate of 7.7% in Q2 of the previous financial year. Nominal GVA has witnessed a growth rate of 8.1 % in Q2 of FY 2024-25 as against 9.3% in Q2 of the previous fiscal.
Consumption data: Private Final Consumption Expenditure (PFCE) has witnessed a growth rate of 6.0% and 6.7% respectively in Q2 and H1 of the FY 2024-25 over the growth rate of 2.6% and 4.0% in Q2 and H1 of the previous financial year, as per the official data.
It also showed that the Government Final Consumption Expenditure (GFCE) has rebounded to a growth rate of 4.4% after observing either negative or low growth rates in previous three quarters.
Agriculture: Agriculture and allied sector has bounced back by registering a growth rate of 3.5% in Q2 of FY 2024-25 after sub-optimal growth rates ranging from 0.4% to 2.0%, observed during previous four quarters.
Tertiary sector: Tertiary sector has observed a growth rate of 7.1% in Q2 of FY 2024-25, as compared to the growth rate of 6.0% in Q2 of the previous financial year. In particular, Trade, Hotels, Transport, Communication & Services related to Broadcasting has seen a growth rate of 6.0% in Q2 of FY 2024-25 over the growth rate of 4.5% in Q2, 2023-24.
Factors responsible for Slowdown: Economists had highlighted a combination of factors, including rising food inflation, higher borrowing costs, and stagnating real wage growth, which collectively dampened urban private consumption—a key driver contributing nearly 60% of India’s GDP.
Retail food inflation, for instance, surged to 10.87% in October, significantly eroding purchasing power.
Corporate earnings also reflected economic headwinds, with leading Indian firms reporting their weakest quarterly performance in over four years for the July-September period. This downturn has raised concerns over a potential slowdown in investments and business expansion plans.
RBI Outlook: Despite these challenges, the RBI has maintained its GDP growth forecast for FY25 at 7.2%, a drop from the previous fiscal year’s 8.2%. While the central bank has kept its repo rate unchanged at 6.50%, its policy stance has shifted to neutral, indicating caution amid persistent inflationary pressures.
Experts remain cautiously optimistic: Looking ahead, analysts remain cautiously optimistic about a potential economic rebound in the latter half of FY25. Factors such as increased state spending post-elections and improved rural demand following a favorable harvest are expected to provide some relief.
