Sluggish manufacturing, mining drag down Q2 GDP growth

India’s Gross Domestic Product (GDP) growth in the second quarter of the current financial year remained way below the estimates at 5.4%, compared with growth rate of 8.1% in Q2 of FY 2023-24 on the back of the consumption blues haunting the economy.

“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 and quarrying (-0.1%) sectors in Q2 of FY 2024-25, real GVA in H1 (April-September) has recorded a growth rate of 6.2%,” said the ministry of statistics.

“The sharply lower than expected GDP figures reflects the highly disappointing corporate earnings data. The manufacturing sector appears to have taken the maximum beating,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.

“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%. Despite the sharp slowdown in GDP growth we maintain our view of a pause by the RBI next week given elevated inflation and uncertain global environment,” Bhardwaj added.

Ratings agencies, brokerages and banks had lower growth but the final print is lower than expected. Most estimates suggested the growth rate to be in the range of 6.5% to 6.8%, compared with 7.6% growth in Q2, FY24.

Ratings agency ICRA was of the view that the country’s GDP and GVA growth is anticipated to dip to 6.5% and 6.6%, respectively, in Q2 FY2025 from 6.7% and 6.8%, respectively, in Q1 FY2025, with bountiful rains and weak margins offsetting the buoyancy injected by the turnaround in the government’s capital expenditure and healthy trends in kharif sowing. “Several sectors faced headwinds on account of excess rainfall that affected mining activity, electricity demand and retail footfalls, and the contraction in merchandise exports in Q2 FY2025.” ICRA said in the Economic Outlook and Macro Trends report released this month.

“We estimate Q2FY25 GDP growth around 6.5%, data for which will be released on 29 November and expected Q3 and Q4 growth numbers could push overall yearly GDP growth closer to 7% in FY25,” said SBI on growth outlook in its Ecowrap report. Bank of Baroda, meanwhile, anticipated India's GDP growth in Q2 to be at 6.9 %, higher than 6.7% in the first quarter.

Nirmal Bang Institutional Equities had pegged the second quarter GDP growth at 6.4 per cent, down from the earlier estimates of 6.8 per cent. The downgrade is majorly on the back of modest growth in net taxes on products estimated at nearly 5-6 per cent in Q2FY25 versus 4.1 per cent in Q1FY25.