India’s Q2 FY2025 GDP Growth Drops To 5.4%: What It Means For The Economy

India’s economic growth slowed to 5.4% in the second quarter of FY25, significantly lower than the 8.1% recorded during the same period last year. This marks a continued deceleration from the 6.7% growth seen in the previous quarter. The slowdown was anticipated by economists, driven by a combination of weaker consumption, subdued government spending, and adverse weather affecting critical industries.

Despite the moderation in overall growth, sectoral performance varied. Manufacturing growth remained sluggish at just 2.2%, while mining saw a slight contraction of 0.1%. The agriculture sector showed a recovery, posting 3.5% growth, while construction activity surged by 7.7%, supported by strong domestic steel consumption. The services sector grew robustly at 7.1%, with trade, hotels, and transport sectors contributing significantly.

Private final consumption expenditure (PFCE), which plays a pivotal role in India’s GDP, grew by 6.0%, an improvement from 2.6% in the previous year. Government spending also showed signs of recovery, with Government Final Consumption Expenditure (GFCE) increasing by 4.4%, reversing a trend of weak government spending in recent quarters.

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However, challenges persist. Inflation continues to affect consumer spending power, with food inflation reaching 10.87% in October, and headline inflation breaching the Reserve Bank of India’s target range. High borrowing costs and stagnant wage growth have kept urban consumption sluggish, though rural demand shows signs of revival.

The Reserve Bank of India (RBI) has kept its GDP growth projection for FY25 at 7.2%, down from 8.2% last year. It has also maintained the repo rate at 6.50%, signaling caution in the face of persistent inflation. Government and economic analysts expect a gradual recovery in the second half of FY25, with anticipated improvements in rural demand, state spending after elections, and continued growth in the construction and services sectors.

The outlook for India’s growth in the coming months will depend on successfully managing inflationary pressures and reviving consumer spending to stabilize economic momentum.

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