India’s economic growth has experienced a significant slowdown in the second quarter of FY 2024-25, with GDP growth declining to 5.4%, marking its lowest level in nearly two years. This deceleration from the previous quarter’s 6.7% and the year-ago period’s 8.1% has raised concerns about the economy’s momentum and sparked debates about monetary policy direction.
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India GDP Growth : Sectoral Performance Analysis
The manufacturing sector witnessed a dramatic slowdown, with GVA growth plummeting to 2.2% from 14.3% in the previous year. Similarly, the mining sector contracted by 0.1%, a stark contrast to its 11.1% expansion a year ago. These declines highlight the industrial sector’s current challenges.
Bright Spots in the Economy
Despite overall slowdown, some sectors showed resilience:
- Agriculture: Growth accelerated to 3.5% from 1.7%
- Construction: Maintained robust growth at 7.7%
- Financial services: Slight improvement to 6.7%
Consumer Spending and Investment
Private Consumption Trends
Private final consumption expenditure, a key economic indicator, showed moderation:
- Current growth: 6%
- Previous quarter: 7.4%
- Impact on urban and rural demand patterns
Investment Scenario
The economy faces challenges in investment spending:
- Government investment contracted by 15.4% in H1
- Infrastructure sector impacts
- Credit growth concerns
Policy Implications and Debates
RBI’s Monetary Policy Dilemma
The central bank faces a complex balancing act:
- Pressure for rate cuts from government
- Inflation concerns (currently at 6.2%)
- Target inflation rate of 4%
- Growth vs. stability considerations
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FAQs
Q1: What are the main factors contributing to the GDP growth slowdown in Q2?
The slowdown is primarily attributed to weak manufacturing sector performance, declining mining output, reduced government investment, and moderated consumer spending. The industrial sector’s underperformance and slower credit growth have also played significant roles in the deceleration.
Q2: How might this GDP data affect RBI’s monetary policy decisions?
While the slower growth puts pressure on RBI to consider rate cuts, the central bank must balance this against high inflation (6.2%). RBI Governor Shaktikanta Das maintains that inflation must sustainably decrease to 4% before considering rate cuts, despite government calls for monetary easing.
