Shaky core sector performance putting pressure on GDP figures

India's gross domestic product growth has slumped to a seven-quarter low of 5.4% in July to September 2024 quarter much lower than even the most pessimistic projections.

- Tushar K Mahanti

GDP grew by 8.1% in the second quarter a year ago. That GDP growth was slowing down was evident when it grew by just 6.7% in the first quarter against 8.2% in the same quarter of last year. Gross value added (GVA) growth slowed to 5.8% during July-September 2024-25 quarter from 6.8% in the first quarter. GVA grew by 7.7% in the second quarter of last fiscal.

The poor performance in the first two quarters has caused the finance ministry to downsize the projected GDP growth to 6.4% for 2024-25 against 8.2% achieved last year. The International Monetary Fund (IMF) has lowered India's growth forecast to 6.5% for 2024-25 as against 7% projected earlier. The World Bank too has lowered its growth projection to 6.5% in 2024-25. The Bank has, however, kept its growth forecast for India unchanged at 6.7% for FY26, maintaining that the country will remain the fastest-growing major economy for the next two years.

The decline in GDP growth is largely attributed to the fall in capital expenditure by the central and the state governments, lower consumption demand and poorer activities in the services sector. Investment growth declined to 5.4% in Q2 from 7.5% recorded in the previous quarter.

Private final consumption expenditure and gross fixed capital formation together account for a fall of 1.5% points which probably explains the fall in the GDP growth from 6.7% in Q1 FY25 to 5.4% in Q2 FY2, analysts suggest. The central government's capital expenditure in the first half of the current financial year was 15.4% lower when compared with the corresponding period of last year.