India’s Economic Growth Slows to Seven-Quarter Low
India’s economic growth has hit a significant slowdown, reaching a seven-quarter low in the July-September quarter of the current fiscal year. This decline is primarily attributed to a downturn in the manufacturing sector and a contraction in mining activities. However, the services sector has shown resilience, and the agricultural segment has rebounded. The latest data from the National Statistics Office reveals that the Gross Domestic Product (GDP) grew by 5.4% during this period, a decrease from 6.7% in the previous quarter and significantly lower than the 8.1% recorded in the same quarter last year. This growth rate also fell short of the Reserve Bank of India’s (RBI) projection of 7% for the quarter ending in September. The government anticipates that the economy will grow within the range of 6.5% to 7% for the fiscal year.
Factors Contributing to the Slowdown
The economic slowdown has been sharper than many experts anticipated. Analysts have pointed to several factors contributing to this decline, including weak consumption and investment. Weather-related events, particularly excessive rainfall, have adversely affected key sectors such as electricity, coal, and cement. Additionally, muted corporate earnings and persistent inflation have further dampened overall demand. Chief Economic Adviser V. Anantha Nageswaran expressed disappointment over the 5.4% GDP growth, noting that while it is lower than expected, there are still some positive indicators.
The manufacturing sector has experienced a significant slowdown, with growth plummeting to just 2.2% compared to a robust 14.3% in the same quarter last year. The mining sector also faced challenges, contracting by 0.1% after previously growing by 11.1%. Overall, the industrial sector has reached a six-quarter low, growing by only 3.6%. Despite these setbacks, the services sector has maintained its momentum, growing by 7.1%, slightly down from 7.2% in the previous quarter. The agricultural sector, which had been sluggish in earlier quarters, rebounded with a growth rate of 3.5%, up from 2% in the previous quarter.
Investment Trends and Government Spending
Investment trends have shown a sharp moderation, which has raised concerns among economists. Government capital expenditure, which had been a crucial driver of growth, has seen a decline. In the first half of the fiscal year, capital expenditure from the central government fell by 15%, while consolidated state capital expenditure decreased by 11%. This decline in government spending could further exacerbate the slowdown in economic growth.
Despite these challenges, there is a silver lining. Consumption growth has remained relatively healthy, hovering around 6% in the second quarter. This indicates that while investment may be waning, consumer spending is still robust. Rajani Sinha, Chief Economist at CareEdge, emphasized that the lower growth is primarily due to poor performance in the industrial sector, particularly in mining, manufacturing, and electricity. The overall economic landscape remains complex, with both challenges and opportunities ahead.
Outlook for the Future
Looking ahead, the economic outlook remains cautious. The RBI has retained its growth forecast of 7.2% for the fiscal year 2024-25, but many experts believe that achieving this target will require significant improvements in industrial performance and investment levels. The government is expected to focus on stimulating growth through various measures, including enhancing infrastructure spending and encouraging private investment.
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