India's gross domestic growth (GDP) slowed significantly to seven-quarter low of 5.4% in the July-September quarter of the financial year (2024-25), according to the latest economic growth data shared by the National Statistics Office (NSO) of the Ministry of Statistics and Program Implementation (MoSPI). The GDP growth slipped from 8.1% in the same period last fiscal year and 6.7% in the previous quarter.

The slowdown in GDP growth was recorded amid weaker consumption and weather impact on key sectors. With this, the GDP growth has fallen even below 6.5%-6.8% growth estimates by banks and economists.

"Real GDP has been estimated to grow by 5.4% in Q2 of FY 2024-25 over the growth rate of 8.1% in Q2 of FY 2023-24. Despite sluggish growth observed in Manufacturing (2.2%) and Mining & Quarrying (-0.1%) sectors in Q2 of FY 2024-25, real GVA in H1 (April-September) has recorded a growth rate of 6.2%," MoSPI says in a statement.

The real GVA (gross value added) grew by 5.6% in Q2 over 7.7% in Q2 of the previous financial year, while nominal GVA saw 8.1% growth over 9.3% growth in the same period last year.

Unlike the last quarter, the ministry says, agriculture and allied sector has bounced back by registering a growth rate of 3.5%. This comes after sub-optimal growth rates ranging from 0.4% to 2.0%, observed during the previous four quarters.

"India’s GDP growth at 5.4% was below market consensus," says Aditi Gupta, economist, Bank of Baroda. "This reflects a cyclical slowdown due to monsoon, which was compounded by a reduction in government spending due to the general elections."

Upasna Bhardwaj, chief economist, Kotak Mahindra Bank says the sharply lower than expected GDP figures reflects the highly disappointing corporate earnings data. "The manufacturing sector appears to have taken the maximum beating. The high frequency data suggests that festive linked revival in activity may provide a marginally better 2H growth figure but overall GDP growth for FY25 is going to be around 100bps lower than RBI’s estimate of 7.2%."

Gupta of BoB adds that the economic growth, however, is likely to recover in H2 FY25, supported by festive demand as well as improved agricultural prospects. "Even so, GDP growth for FY25 is likely to fall short of the RBI’s estimate of 7.2%. We will also be revising our GDP forecast for FY25 lower in due course," says Gupta.

Bhardwaj of Kotak Bank also says that despite the sharp slowdown in GDP growth, they maintain the view of a "pause" by the RBI next week, given elevated inflation and uncertain global environment.

Ahead of the release of the data by the government, ratings agencies, brokerages and banks had pegged about one percentage point dip in GDP growth rate year-on-year. Estimates suggested the growth rate to be in the range of 6.5%-6.8%, compared with 7.6% growth in Q2 FY24.

India’s economy expanded by 6.7% in the first quarter of the current fiscal, which was below over 7% growth recorded in the preceding four quarters, primarily due to the poor performance of key sectors like agriculture and services. While agriculture grew by merely 2% in the first quarter, services sectors grew by 7.2%.

The nominal GDP, however, grew by 9.7% in Q1 FY25, higher than the 8.5% growth witnessed in the same quarter in the previous fiscal year. Though the growth for Q1 reduced to 6.7% YoY, it was still higher than the average decadal growth of 6.4% in Q1.

The GVA, on the other hand, grew by 6.8% in the first quarter, and the gap between GDP and GVA shrank to merely 19 bps compared to an average gap of 122 bps in the preceding three quarters.