Understanding India's Economic Performance in Q2 FY25

India’s Economic Growth in Q2 FY25: An Overview

India's economic growth in Q2 FY25 has slowed to 5.4%, marking the lowest rate in seven quarters. This decline reflects challenges across various sectors amidst global economic uncertainties, weak domestic demand, and election-induced delays in government spending. Understanding the performance of each sector is crucial for addressing underlying issues and sustaining long-term economic growth.

Sectors That Experienced Growth

• Agriculture, Forestry, and Fishing (3.5% growth):
  • Reasons for Growth: Favorable monsoon conditions improved agricultural output, while increased rural demand positively influenced the sector.
• Services Sector (7.1% growth):
  • Key Drivers: Growth in trade, hotels, transport, and communication services, alongside resilient demand in IT and financial services.
• Construction (7.7% growth):
  • Reasons for Growth: Continued public investment in infrastructure projects and sustained urban housing demand.
• Primary Sector (Agriculture and Mining – 3.9% growth):
  • Reasons for Growth: A modest recovery in mining supported by stabilization of commodity prices and reliance on natural resources for energy.

Sectors That Faced Decline

• Manufacturing (2.2% growth):
  • Reasons for Decline: Weak domestic consumption and a global economic slowdown reduced production and export demand.
• Electricity, Gas, and Other Utilities (3.3% growth):
  • Reasons for Decline: Slower industrial demand for electricity due to subdued manufacturing activity.
• Mining (-0.1% contraction):
  • Reasons for Decline: A high base effect from the previous year, coupled with regulatory challenges and limited investment in exploration.
• Gross Fixed Capital Formation (GFCF – 5.4% growth):
  • Reasons for Decline: Reduced government capital expenditure, down 14.7% in April-October, and an election-induced slowdown in public spending.

Analysis of GDP Slowdown

• Weak Domestic Demand: Private consumption expenditure grew only 6%, highlighting reduced household spending due to high inflation.
• Decline in Exports: Although net exports positively contributed to GDP, overall export growth slowed due to global headwinds.
• Election-Related Delays: Public spending on infrastructure projects was hindered during the election period.
• High Base Effect: The strong growth in the same quarter last year led to comparatively subdued growth this year.
• Limited Manufacturing Growth: Industrial output remained weak due to supply chain challenges and reduced global demand.

Frequently Asked Questions (FAQs)

Q1. Why did India’s GDP growth slow to 5.4% in Q2 FY25?
Answer: The slowdown is attributed to weak domestic demand, reduced government spending, and limited industrial growth. High inflation and base effects also played a role in lowering growth.

Q2. Which sectors performed well and why?
Answer: Agriculture, services, construction, and primary sectors grew due to favorable weather, infrastructure investments, and increased rural demand.

Q3. Why did the manufacturing sector grow so slowly?
Answer: The manufacturing sector faced weak consumer demand and declining exports, compounded by high input costs that hindered growth.

Q4. What factors led to the decline in Gross Fixed Capital Formation (GFCF)?
Answer: GFCF declined due to lower government capital spending during the election period and procedural delays affecting infrastructure projects.

Q5. How does inflation impact economic growth?
Answer: High inflation diminishes household purchasing power, leading to lower consumption demand, which significantly affects GDP.

UPSC Practice MCQs

Question 1: What was India's GDP growth rate in Q2 FY25?
A) 7.2%
B) 5.4%
C) 6.0%
D) 4.5%
Correct Answer: B

Question 2: Which sector showed the highest growth in Q2 FY25?
A) Manufacturing
B) Services
C) Construction
D) Agriculture
Correct Answer: C

Question 3: What primarily caused the decline in manufacturing growth?
A) Increased exports
B) High inflation
C) Weak domestic demand
D) Government spending
Correct Answer: C