India's GDP Growth Slips In Q2; Experts Revise FY25 Projections Amid Manufacturing Slowdown

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New Delhi: India's GDP growth has disappointed expectations, with the economy growing by just 5.4 per cent in the July-September quarter of FY2024-25, significantly below the Reserve Bank of India's (RBI) forecast of 7 per cent.

This slower-than-expected growth has raised concerns among economists, who are now adjusting their projections for the rest of the year. Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, noted that the sharp dip in GDP growth reflects the disappointing corporate earnings data, particularly in the manufacturing sector, which appears to have faced the brunt of the slowdown.

She said, "The sharply lower-than-expected GDP figures reflect the highly disappointing corporate earnings data. The manufacturing sector appears to have taken the maximum beating. The high-frequency data suggests that festive linked revival in activity may provide a marginally better 2H growth figure, but overall GDP growth for FY25 is going to be around 100bps lower than RBI's estimate of 7.2 per cent.

"She added, "Despite the sharp slowdown in GDP growth, we maintain our view of a pause by the RBI next week given elevated inflation and an uncertain global environment."Sujan Hajra, Chief Economist & Executive Director at Anand Rathi Shares and Stock Brokers, also weighed in on the GDP data, explaining that the 5.4 per cent growth in Q2 fell short of both their own projection (6.7 per cent) and the street's estimate (6.5 per cent).

He said, "This weakness in the numbers was largely due to discrepancies; net of these, GDP growth remained at a healthy 7.5 per cent. On the production side, weaker growth was observed in the industrial segment, while the services sector, where we had expected 8 per cent growth, recorded a healthy but slightly lower expansion of 7.1 per cent. 

Agriculture, on the other hand, expanded at a strong pace, as reflected in the advanced estimates for Kharif output."While we are not revising our full-year growth projection of 7 per cent thus implying a 7.9 per cent growth in H2, we will closely monitor the momentum going forward. We believe that growth in the second half (H2) will be driven by continued strength in agriculture, which is expected to boost rural demand further and increase in capital expenditure (capex) from both central and state governments. 

Additionally, moderation in the industrial sector's base should support stronger growth, especially with the complete monsoon season," he added. Hajra stated that, however, certain headwinds could impact our outlook. Risks include the potential impact of Chinese imports ("China dumping") and policy uncertainties following the US elections, both of which could dampen a revival in private sector investment.

The official data, released by the Ministry of Statistics and Programme Implementation, shows that India's GDP for Q2 of FY2024-25 stood at Rs44.10 lakh crore, up from Rs41.86 lakh crore in the same quarter last year.Despite the slowdown in Q2, India's economy grew by 6.7 per cent in Q1, which was also below the RBI's forecast of 7.1 per cent. 

As a result, many global rating agencies, including S&P Global Ratings, have revised their growth forecasts for India.The IMF and World Bank have pegged India's 2024-25 GDP growth at 7 per cent, while the RBI had earlier forecast a growth of 7.2 per cent.

The RBI remains optimistic about the medium-term outlook, stating that the slowdown observed in the second quarter is behind the economy. Private consumption, which is expected to drive domestic demand, is showing signs of recovery, bolstered by festive season spending. 

However, analysts remain cautious, with most projecting that India's growth will be somewhat lower than initially forecast, given the recent data trends.