India’s economy is expected to grow at a slower pace in the July-September quarter. Prolonged rainfall and weak consumption in urban areas, particularly in manufacturing, mining, and electricity sectors, have contributed to this slowdown. According to economists, India’s GDP growth for Q2 could drop to 6.5%, down from 6.7% in the previous quarter and 8.1% in the same period last year.
Capital expenditure (capex) has picked up in Q2 after a slowdown during the Lok Sabha elections. However, it remains lower than last year’s levels, raising concerns about growth. The agriculture sector is performing well, with strong kharif output estimates and a recovery in rural demand, which is seen as a bright spot.
Rahul Bajoria, an economist at Bank of America, expects agriculture GDP to rise by 6% in Q2 due to good crop production. The industrial sector, especially mining, electricity, and manufacturing, is struggling. Manufacturing GDP growth may remain stagnant, while construction growth is expected to decline to 6% from 10.5% in Q2 2024. Services growth is also expected to slow due to weaker credit growth.
The GDP data for July-September will be released on November 29. Economists expect growth to range from 6.2% to 6.9%. A slowdown in exports and imports is expected to weigh heavily on Q2 growth, with exports dragging growth by about 1.1 percentage points.
Sonal Varma, Chief Economist at Nomura, believes India has entered a cyclical growth slowdown. She expects GDP growth to moderate further in the coming months. However, agriculture, financial services, and real estate sectors are expected to remain robust.
The Reserve Bank of India (RBI) has projected a 7.2% GDP growth for FY25, while the Economic Affairs Secretary recently stated that there are no significant downside risks to growth projections. Despite concerns about slow capex, a boost in rural demand and agricultural growth is expected to help support future growth.
October’s economic indicators show positive signs, with improvements in manufacturing, services, and consumption. HDFC Bank’s research suggests that rural demand is outpacing urban demand, and corporate profits have grown by 7-8%. GST collections, automobile sales, and inflation trends also show optimism for the rest of the year. Bank of Baroda’s Chief Economist predicts a 7.3-7.4% GDP growth for FY25.
Rabi sowing is expected to perform well, and overall growth momentum may improve in the second half of the year. A good kharif crop and healthy reservoir levels for rabi sowing will help boost rural demand.
Leave a Reply