November 29, 2024: India’s economic growth has slowed to a near two-year low, with the nation’s GDP expanding by only 5.4% in the July-September quarter of the 2024-25 fiscal year, according to the latest data released by the National Statistical Office (NSO) on Friday. This marks a significant deceleration from the 8.1% growth registered in the same quarter last year, largely driven by weaker performance in key sectors like manufacturing and mining.
Despite this slowdown, India continues to outpace other major economies, maintaining its position as the fastest-growing large economy. China’s GDP growth for the same period was reported at 4.6%, underscoring India’s resilience in a global environment that is still grappling with various challenges, including inflation and geopolitical tensions.
Key Sectors Contribute to Sluggish Growth
The performance of India’s key sectors in Q2 has raised concerns among economists. Manufacturing, which had seen a robust 14.3% growth in Q2 of 2023-24, has experienced a sharp decline, growing by just 2.2% in the current quarter. Similarly, mining and quarrying, which had expanded by 11.1% in the previous year, contracted by 0.01%. These slowdowns reflect the ongoing structural issues facing these sectors, including supply chain disruptions and sluggish domestic demand.
On a brighter note, the agriculture sector saw a positive turnaround, with its Gross Value Added (GVA) growing by 3.5%, up from 1.7% in the same quarter last year. This improvement reflects a recovery in rural demand and higher agricultural output, offering some relief to the economy.
Additionally, the services sector remains a strong performer, with the GVA of financial, real estate, and professional services growing by 6.7%, slightly higher than last year’s 6.2%. However, the construction sector, which had been one of the stronger growth engines in previous quarters, reported a deceleration in its expansion, growing by 7.7% as compared to 13.6% in the year-ago period.
Fiscal Health: Government Deficit and Outlook – Sluggish Manufacturing and Mining Sectors Weigh on GDP, But Outlook Remains Positive
The government’s fiscal deficit data for the first seven months of the current financial year also reveals a concerning trend, with the fiscal deficit touching 46.5% of the full-year target by the end of October 2024. In absolute terms, the deficit stood at ₹7,50,824 crore, slightly higher than the 45% recorded during the same period last year. While this figure is within expected levels, it signals a potential challenge for fiscal consolidation efforts in the coming months.
On the GDP front, India’s real GDP (at constant prices) in Q2 of 2024-25 is estimated at ₹44.10 lakh crore, up from ₹41.86 lakh crore in the same quarter of 2023-24, marking a growth of 5.4%. In nominal terms, the economy grew by 8.0%, reaching ₹76.60 lakh crore compared to ₹70.90 lakh crore in Q2 of 2023-24.
On a half-yearly basis, the real GDP for the first half of the current fiscal year (April-September 2024-25) has grown by 6%, reaching ₹87.74 lakh crore, compared to ₹82.77 lakh crore during the same period last year. Nominal GDP for H1 FY25 showed a stronger 8.9% increase, reaching ₹153.91 lakh crore.
Looking Ahead: Challenges and Opportunities
Looking ahead, the slowdown in manufacturing and mining poses a significant challenge for India’s economy. While the agriculture and services sectors are showing promise, especially in terms of rural demand and financial services, India’s ability to sustain high growth will depend on a recovery in industrial output and more favorable conditions for investments.
Experts are cautiously optimistic, with expectations that India’s robust services sector, combined with a recovering agricultural output, will continue to support the economy. However, the government will need to focus on enhancing infrastructure, easing supply-side constraints, and supporting manufacturing to maintain its lead as the fastest-growing large economy.
The fiscal deficit remains a critical area for the government to monitor closely. As it strives to balance its fiscal policies, the gap between expenditure and revenue will need careful management to avoid inflationary pressures and ensure long-term economic stability.
Key Takeaways:
The government’s fiscal deficit stood at 46.5% of the full-year target by October 2024.
India’s GDP growth slowed to 5.4% in Q2 of 2024-25, down from 8.1% in the same period last year.
Manufacturing and mining sectors experienced significant declines in growth.
Agriculture and services sectors showed positive growth, with agriculture up by 3.5% and financial services growing by 6.7%.
India remains the fastest-growing major economy, with China’s growth at 4.6%.
