GDP hits a low

INDIA’s economic growth in the second quarter of FY25 has decelerated to a disappointing 5.4%, the lowest in seven quarters. This figure, significantly below last year’s 8.1% for the same period, underscores the mounting pressures on the country’s economic resilience. The manufacturing sector, traditionally a growth driver, is at the heart of this slowdown, grappling with declining output and subdued demand. The decline in Gross Value Added (GVA) in manufacturing to 2.2% from 14.3% a year ago highlights the sector’s vulnerability to inflation and weak consumer spending. While the Chief Economic Adviser has downplayed concerns, brushing off this dip as a “one-off”, there is need to remain cautious. Private final consumption and gross fixed capital formation together shaved off 1.5 percentage points from the overall growth, signalling waning confidence in household and business spending.

On the brighter side, the services sector expanded by 7.1% and the agriculture sector grew by 3.5%, driven by improved rural demand. However, these gains were not sufficient to offset the drag from manufacturing and exports, which slowed to 2.8%, reflecting global uncertainties and weaker petroleum exports.

The government’s underwhelming capital expenditure — just 37% of the budgeted target for the first half — adds another layer of concern. Public spending is critical to kickstarting private investments, particularly when high borrowing costs stifle corporate growth. As India faces the dual challenge of sustaining growth while managing inflation, a robust fiscal push is imperative. Without increased public investment and strategic support for manufacturing, the risk of falling below the projected 6.5% annual GDP growth looms large. The upcoming fiscal policy decisions will thus be crucial in steering the economy back on a stable growth trajectory.