GDP growth rate slumps to near two-year low of 5.4% in July-Sept

Several factors added up to what Chief Economic Advisor V Anantha Nageswaran described as a “disappointing but not alarming” lower growth rate in Q2. Going forward, he said, doubling down on deregulation, expanding state capacity for public investment, and improving hiring and compensation policies in the private sector, will improve growth prospects and turn the second quarter numbers into a fading memory.

“Bulk of the slowdown has been predominantly due to the manufacturing sector. And some of it is partly due to the presence of excess capacity elsewhere and imports dumping in India and naturally the manufacturing process slowed down,” he said.

Manufacturing, which accounts for over 17 per cent of the total Gross Value Added (GVA) output, grew by just 2.2 per cent in July-September as against 7 per cent growth in April-June and 14.3 per cent growth in the corresponding period last year. Mining and quarrying seem to have been sharply hit by the extended rainfall as it recorded a contraction of 0.1 per cent in July-September compared with 7.2 per cent growth in the previous quarter and 11.1 per cent in the year-ago period.

There were some bright spots though, Nageswaran said. “Agriculture has done quite well. The other bright spot is construction. Over the last full year, the construction sector has been growing at very high single digits and continued that growth rate in the first half of the current financial year as well,” he said.

To a question on the need for an interest rate cut, the CEA said the numbers were available for all to see, including the RBI. “They know what to do and I will not be commenting on this,” Nageswaran said.

When asked if there is risk to the Economic Survey’s growth projection of 6.5-7 per cent for the full financial year he said, “It is too soon to say that even 6.5 per cent is in danger. I don’t think we should extrapolate too much.”

The Reserve Bank of India (RBI) has projected a much higher GDP growth rate of 7.2 per cent for 2024-25 and 7.1 per cent for FY26. Last week, Economic Affairs Secretary Ajay Seth had said there is “no significant downside risk” to the 6.5-7 per cent growth projection for this year.

Among the primary sectors, agriculture grew 3.5 per cent in July-September as against 2 per cent in the previous quarter and 1.7 per cent in the year-ago period. Construction sector recorded a “high single digit” growth of 7.7 per cent in Q2. It had grown at a much higher rate of 10.5 per cent in Q1 and 13.6 per cent in the year-ago period. Services sector grew slower than expected at 7.1 per cent in Q2 as against 7.2 per cent in Q1 and 6 per cent in the corresponding period a year ago.

Private final consumption expenditure, an indicator of consumption demand, grew by 6 per cent to Rs 24.82 lakh crore in July-September as against 7.4 per cent growth in Q1 and 2.6 per cent a year ago. Government final consumption expenditure grew 4.4 per cent in Q2 compared with a contraction of 0.2 per cent in Q1, and 14 per cent growth in Q2 previous year.

“Despite sluggish growth observed in ‘manufacturing’ (2.2%) and ‘mining & quarrying’ (-0.1%) sectors in Q2 of FY 2024-25, real GVA in H1 (April-September) has recorded a growth rate of 6.2%,” the Ministry of Statistics and Programme Implementation said. GDP is GVA plus net taxes on products (taxes less subsidies).

Government expenditure in Q1 (Rs 4.15 lakh crore) was said to be suppressed due to model code of conduct in view of the Lok Sabha elections, but the NSO data shows that in absolute terms, it was lower in Q2 at Rs 4.01 lakh crore.