Q2 GDP: India's Economic Growth Slowest In 2 Years, At Staggering 5.4%; What Impacted?

India's economic growth took a significant hit in the July-September quarter (Q2FY25), with GDP growing slowest since Q3FY23, to a staggering 5.4%. This marked a sharp pullback from the 8.1% growth recorded in the same quarter last year and also slowed against the 6.7% growth rate witnessed in the previous quarter (Q1FY25). As per experts, the latest GDP print reflects the shocks of weakness in consumption in urban areas and vagaries of monsoon.

That being said, the performance is below market expectations, which had pegged growth closer to around 6.9-7%. The Reserve Bank of India (RBI) had forecasted 7% GDP growth rate for India in Q2FY25.

Vineet Agarwal, Managing Director of the listed company, Transport Corporation of India (TCI) said, "The GDP data for Q2 this year are a reflection of the vagaries of monsoons, as well as slower than expected consumption growth in urban areas."

He further highlighted that the impact was felt across industries, such as retail, mining to automobiles.

Meanwhile, the Gross Value Added (GVA) for the quarter grew by 5.6%, also below the forecast of 6.5%. This was a steep decline from the 7.7% growth recorded in the corresponding quarter last year and 6.8% in Q1FY25. Sectoral analysis showed mixed trends:

Agriculture: A bright spot, with growth improving to 3.5%, up from 1.7% year-on-year and 2% in the previous quarter.

Mining: Contracted by -0.1%, a stark reversal from the 11.1% growth seen a year ago and 7.2% in the preceding quarter.

Manufacturing: Slowed significantly, posting just 2.2% growth, a sharp drop from 14.3% year-on-year and 7% quarter-on-quarter.

The National Statistics Office attributed the slowdown to a combination of high food inflation and rising borrowing costs, which weighed heavily on household consumption. Urban demand, in particular, remained subdued despite increased government spending during the quarter. The economic impact of high interest rates by the Reserve Bank of India (RBI) further dampened consumer spending and private sector investment.

Additionally, the approaching general elections reportedly disrupted routine government activities, curbing expenditure and delaying project implementation.

This GDP figure is the slowest expansion in five quarters and highlights the impact of external and internal pressures on India's economic resilience. Notably, real GDP growth for Q1FY25 stood at 6.7%, lower than the 8.2% recorded in the same period last year.

India plans to introduce a new GDP series with 2022-23 as the base year, alongside a revised Consumer Price Index (CPI) series, by February 2026. This is expected to provide a clearer and more comparable picture of economic performance going forward.

Going ahead, Agarwal said, with a pickup expected in capital expenditure by the government, growth in demand during the festive season, and stable rural demand, we are likely to see better numbers for the coming quarters and FY 2025