India's Q2 GDP Growth Slows to 5.4% in FY25, Down from 6.7% in Q1

India's economic growth slowed to 5.4 per cent in Q2FY25, showing a significant decline from 8.1 per cent during the same period last year, according to government data released on Friday. The country's growth projection was 6.7 per cent in the first quarter of this financial year.

The previous low level of GDP growth at 4.3 per cent was recorded in the third quarter (October-December 2022) of financial year 2022-23. However, India still remained the fastest-growing major economy as China's GDP growth in the July-September quarter this year was 4.6 per cent.

The agriculture and allied sector has bounced back by registering a growth rate of 3.5 per cent in Q2 of FY25 after sub-optimal growth rates ranging from 0.4 per cent to 2.0 per cent, observed during previous four quarters.

The GVA growth of the manufacturing sector decelerated to 2.2 per cent in the second quarter of the current fiscal against 14.3 per cent growth registered a year ago.

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If we look at the growth of other industries, the construction sector sustained domestic consumption of finished steel has resulted 7.7 per cent and 9.1 per cent growth rates respectively in Q2 and H1 of FY25. The tertiary sector has observed a growth rate of 7.1 per cent in Q2 FY25 as compared to 6 per cent growt during the same period last fiscal year.

What Do Economists Say?

The Q2 growth data has sparked concerns over a sharp slowdown, with economists highlighting underlying weaknesses in the economy. "These figures reflect highly disappointing corporate earnings data," said Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank.

She said the high frequency data suggests that festive-linked revival in activity may provide a marginally better 2H growth figure but overall GDP growth for FY25 is going to be around 100 bps lower than RBI’s estimate of 7.2 per cent.

"Despite the sharp slowdown in GDP growth we maintain our view of a pause by the RBI next week given elevated inflation and uncertain global environment," she said.

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Another economist believes that the growth in H2 will be driven by continued strength in agriculture, which is expected to boost rural demand further and increase in capital expenditure (capex) from both central and state governments.

"Also, moderation in the industrial sector's base should support stronger growth, especially with the complete monsoon season. However, certain headwinds could impact our outlook," said Sujan Hajra, Chief Economist & Executive Director at Anand Rathi Shares and Stock Brokers.

"Risks include the potential impact of Chinese imports ("China dumping") and policy uncertainties following the US elections, both of which could dampen a revival in private sector investment," he added.