Economists had projected a moderation to 6.5 per cent, but the economy underperformed expectations, plunging to a near two-year low. In the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting last month, Governor Shaktikanta Das forecasted 7 per cent growth for Q2.
The unexpected slowdown is likely to increase pressure on the central bank, which has kept the benchmark repo rate steady amidst inflationary concerns.
Sectoral insights: Mixed performance across industries
According to the NSO, gross value added (GVA), a critical indicator of economic activity was at 5.6 per cent in Q2, down from 6.8 per cent in the preceding quarter.
>Agriculture: Agricultural output improved, growing 3.5 per cent year-on-year (Y-o-Y), compared to 2 per cent in the previous quarter.
>Manufacturing: Growth in manufacturing slowed to 2.2 per cent, significantly below the 7 per cent recorded in Q1 and 14.3 per cent a year earlier.
>Mining: The mining sector contracted by 0.1 per cent, reversing robust growth of 11.1 per cent Y-o-Y and 7.2 per cent sequentially.
> Exports showed only modest growth, rising 2.8 per cent Y-o-Y, down from 5 per cent in the same period last year and 8.7 per cent in the previous quarter.
What caused the GDP slump in Q2 FY25?
Economists have highlighted several factors influencing the disappointing numbers. Inflationary pressures played a significant role, with retail food inflation surging to 10.87 per cent in October, which reduced consumer spending capacity. Headline inflation also breached RBI’s 2-6 per cent comfort range, rising to 6.2 per cent.
Corporate performance remained subdued, as leading firms posted their weakest quarterly results in over four years, affecting investment sentiments. Private consumption, accounting for 60 per cent of GDP, was sluggish due to high borrowing costs and stagnant real wage growth. Despite these challenges, rural demand showed some signs of recovery.
