Let’s discuss what the latest GDP numbers reveal about India’s economy.

The News

India’s GDP for the Q2 FY25 (July-September quarter) saw a 5.4% growth rate, the lowest in seven quarters, and much lower than the RBI’s forecast of 6.8%.

During the same period last year, GDP growth stood at 8.1%, while in the Q1 FY25 (April-June quarter), the growth rate was 6.7%.

Real Gross Value Added (GVA), a core measure of economic activity, grew by 5.6%, a slowdown from 7.7% during the same period last year.

💡 Gross Value Added (GVA) is the measure of the value the economy adds to goods and services by subtracting the cost of raw materials and inputs from the total output.

Let’s see what worked in the favour and what went against

The Positives

Private Final Consumption Expenditure (PFCE)—household spending on consumption, like food, clothing, healthcare, and education, witnessed a growth rate of 6.0%, compared to 2.6% for the previous year’s period.

Government Final Consumption Expenditure (GFCE)—government spending on public services also rebounded to a growth rate of 4.4% after observing either negative or low growth rates in the previous three quarters.

So, despite that, what led to a slow growth rate in GDP?

What caused the slowdown?

Although all sectors showed positive growth, some sectors had significantly lower growth rates compared to the previous year.

The Manufacturing sector grew by only 2.2% in Q2 FY25, down from 14.3% growth in Q2 FY24.

Similarly, the Mining & Quarrying sector showed a slight decline of -0.1% in Q2 FY25 compared to 11.1% growth in the previous year’s period.

What went wrong?

Corporate earnings growth often reflects economic growth. If businesses are doing well, it indicates that the overall economy is also in good shape.

The Q2 earnings published by Indian companies gave hints of a slowdown.

The revenue growth of Indian companies has hit a 16-quarter low, with Q2 earnings of the Nifty 50 companies growing by just 4%. This was the second straight quarter when the Nifty earnings grew in low single digits.

While sectors such as cement performed badly, with profits falling over 40% for the sector, energy companies faced a tough quarter, with revenue growing by just 1% Year-on-Year and profits declining sharply by 42%.

The banking and pharma sectors somewhat balanced it.

For banks (included in the Nifty Bank Index), revenue grew by 16% and net profit grew by 18% in Q2 FY25 compared to Q2 FY24.

Similarly, for the Pharma sector, revenue growth was at 10%, and profit growth was at 24%.

Other sectors, such as auto and metals, more or less remained flat.

To Conclude

The slowdown in India’s GDP growth for Q2 FY25 reflects a mix of challenges and resilience within the economy.

It also opens a door for sooner than expected rate cut from the RBI to boost the economy. As inflation also remains high, putting pressure on growth, it will be crucial to note what the RBI and the government will do going forward.