News

Published: October 4, 2024
Updated: October 4, 2024

India’s Economy Sees Moderate Growth in Q2 Amid Varied Sectoral Performance

India’s economy has shown signs of a modest recovery, following a muted growth rate of 6.7% in the first quarter of FY25, according to economists. While increased government spending and favorable monsoon conditions are anticipated to stimulate growth, high-frequency indicators suggest that the rebound may be slower than initially expected. A report by Anand Rathi highlights several key factors influencing this trend.

Monsoon’s Role in Economic Performance

The monsoon season has played a dual role in shaping the country's economic trajectory. On the one hand, consistent rainfall has bolstered rural demand, benefiting sectors reliant on agricultural activity. On the other hand, late monsoon withdrawal and regional flooding have negatively impacted consumption-driven sectors like agro-chemicals and out-of-home consumption.

Sectoral Performance: Mixed Results

Despite these weather-related challenges, certain sectors are expected to outperform. Hospitals, two-wheeler manufacturers, the jewellery industry, and large-ticket consumer durables have shown resilience. However, industries heavily tied to global economic cycles, such as metals and oil & gas, are likely to continue their underperformance.

Infrastructure and Cement Delays

Infrastructure development and the cement industry have also experienced execution delays. These delays are attributed to erratic monsoon conditions, election-related disruptions, and slower-than-anticipated disbursement of government funds. Such hurdles have stalled progress in these key sectors, hindering their contribution to overall economic growth.

Downward Pressure on GDP Forecast

Suman Chowdhury, Chief Economist at Acuité Ratings & Research, expressed concern over weaker Industrial Production (IIP) data, which could have a dampening effect on GDP growth for the second quarter. This poses a downside risk to the 7% GDP growth forecast for Q2FY25, a figure projected by the Reserve Bank of India (RBI).

RBI’s Outlook

RBI Governor Shaktikanta Das has maintained a relatively optimistic outlook, projecting a real GDP growth rate of 7.2% for FY25. For the second quarter specifically, he has estimated growth at 7%. However, the slower-than-expected recovery across several key sectors may challenge these projections. While India’s economy is making strides towards recovery, the varied sectoral performances and challenges posed by erratic monsoons, election cycles, and budget disbursement delays are contributing to a slower rebound than initially anticipated. Accordingly, achieving the projected 7% GDP growth for the second quarter may prove difficult, and continued monitoring of these factors will be crucial for a more accurate economic outlook.