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India's GDP Growth Slows
Context
India’s GDP growth has sharply slowed from 8.1% to 5.4% in the second quarter of FY25, according to government data released recently. This marks a significant drop from the previous quarter and aligns with predictions from various economists.
Key Reasons for Slowdown:
- Weaker Consumption:
- Food Inflation: Retail food inflation surged to 87% in October, which reduced the purchasing power of consumers.
- Urban Private Consumption: Higher food prices, stagnating wages, and higher borrowing costs dampened urban demand.
- Adverse Weather Impact: The mining and electricity sectors faced disruptions due to adverse weather conditions, further slowing down growth. Although agriculture saw 5% growth, the sector's performance had been weaker in the previous quarters.
- Weaker Corporate Earnings: Corporate earnings in the July-September quarter were weak, with Indian companies reporting their worst performance in four years, contributing to the overall economic slowdown.
- Global Economic Factors: Reduced global demand and slow recovery from previous disruptions also contributed to the slowdown.
- The slowdown in India’s economic growth highlights challenges like high inflation, low consumption, and sector-specific disruptions
Sectoral Performance:
- Manufacturing: Growth in the manufacturing sector slowed to 2%. The Mining & Quarrying sector even saw a negative growth of -0.1% due to the disruptions caused by the rains.
- Agriculture: The Agriculture and Allied sectors bounced back with a 5% growth, after lower growth in the previous quarters.
- Tertiary Sector: This sector, which includes services like trade, communication, and tourism, grew by 1% in Q2 of FY 2024-25, up from 6.0% in the same period last year. Specific sectors like trade, hotels, transport, communication, and broadcasting services grew by 6.0%.
- Construction: This sector grew by 7% in Q2 and 9.1% in the first half (H1) of FY25, supported by strong domestic demand for finished steel.
Fact Box: Gross Domestic Product (GDP)
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