GDP Growth slows to 5.4% in Q2, but recovery on track: FM Sitharaman

She said that the gross domestic product (GDP) growth of 5.4% in the second quarter of the current fiscal year (Q2FY25) was only a “temporary blip”, and expressed confidence that the economy would bounce back and record a healthy growth in the coming quarters. Responding to a debate in the Lok Sabha, Sitharaman said India has seen “steady and sustained” growth and its GDP growth rate has averaged 8.3 per cent in the last three years. “The real growth rate for Q1 and Q2 has been 6.7 per cent and 5.4 per cent, respectively. At 5.4 per cent, the Q2 rate is slower than expected…Q2 of this financial year has been a challenging quarter for India and most other world economies,” said the finance minister.

India continues to be the fastest-growing major economy in the world, FM Sitharaman said, adding that the credit goes to the people of India who are struggling and meeting their aspirations, contributing to the economy. The finance minister also said the manufacturing sector has no broad-based slowdown. 

The slowdown in manufacturing, urban consumption, and disappointing corporate earnings weighed on India’s Q2 GDP print. This was also the slowest in nearly two years and lower than economists’ estimates.

After the Q2 GDP print, the Reserve Bank of India (RBI), in its recent monetary policy committee (MPC), revised India’s growth forecast to 6.6 per cent from 7.2 per cent. Also, US-based credit rating agency, Fitch Ratings last week revised India’s GDP forecast to 6.4 per cent to seven per cent for FY25.Half of the sectors within the overall manufacturing basket continue to remain strong. “A generalised slowdown in manufacturing is not expected, as it is restricted to few segments…out of 23 manufacturing sectors in the Index of Industrial Production, about half remain strong even now,” she said.

Data from statistics ministry had shown last month that manufacturing output expanded by a modest 2.2% in the September quarter, compared to a 14.3% expansion in the same period a year ago and 7% in the first three months of the current financial year.

Manufacturing sector saw a 3.8% growth in the April to October period this year, compared to 6.5% in the year-ago period, official data released last week showed.

She said the Union Government’s capital expenditures increased by 6.4 per cent between July and October 2024. The central government has allocated ₹11.11 lakh crore toward capex during the current financial year.

The minister said the government has laid considerable emphasis on capex and fund allocation for it is growing. For the current year, Centre’s allocation for capital expenditure including grants to states, stands at ₹15 trillion, “one of the highest in government of India’s history,” the minister said.

She added that core inflation excludes volatile food and energy prices and remains at a decadal low of 3.6 per cent. The unemployment rate has decreased from six per cent in 2017-18 to 3.2 per cent. Meanwhile, retail inflation based on the consumer price index (CPI) fell to a three-month low of 5.48 per cent in November from the 14-month high of 6.21 per cent in October, statistics ministry data showed. Inflation fell as vegetable prices cooled due to rising supplies, while factory output growth touched 3.5 per cent thanks to higher production of consumer durables and garments.