India Q2 GDP Growth Weakest in 2 Years:Shocking news has come on the economy front. The country’s GDP growth rate in the July-September quarter was only 5.4%, which is the lowest in the last two years. According to National Statistical Office (NSO) data, the main reason for this decline is the weak performance of the manufacturing and mining sectors. After the latest figures are out, the big question arising is whether the Reserve Bank will now stick to its stance of not cutting interest rates or will there be any change in it?
Manufacturing and mining put brakes
NSO data shows that the growth rate in the manufacturing sector has fallen to 2.2%, which was 14.3% a year ago. Similarly, the mining and quarry sector has declined by 0.01%, whereas it had grown by 11.1% during the same quarter last year. Sectors like housing and real estate performed comparatively better, but their growth was also limited at 6.7%. The construction sector also saw a decline, with growth rate at 7.7%, compared to 13.6% a year ago.Experts believe that this decline has come due to decline in India’s urban demand and decline in household consumption.Madhavi Arora, Chief Economist, MK Global She says, “The decline in income in urban areas has affected consumption. “There has been a significant decline in demand for durable and non-durable goods in the last 3-6 months.”
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Impact of domestic and international factors
India’s economic growth has been affected by both domestic and international factors.Harry Chambers, assistant economist at Capital Economics Says, “Domestic consumption has decreased due to increased interest rates. “Although this will not lead to a complete decline in the economy, the growth rate will remain weak in the near future.” Additionally, the impact of monsoon and low incomes have affected consumption in rural areas as well.HDFC Bank Chief Economist Sakshi Gupta “A decline in consumption and weak growth in sectors such as power and mining contributed to this slow growth,” according to .The agriculture sector performed comparatively better in the September quarter, registering a growth of 3.5%, which was 1.7% a year ago. Government expenditure has also increased since September, due to which improvement is expected in the coming months.
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Vivek Kumar, economist at Quantoco Research Says, “Economic activities may pick up in the next quarter due to increased expenditure by the government and good yield of Kharif crop. “However, due to uncertainty on a global scale, the GDP growth forecast of 7% for the financial year 2024-25 (FY25) may be revised further downwards.”
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Will the Reserve Bank reduce interest rates now?
Despite the weak performance of the September quarter, it is believed that the Reserve Bank of India (RBI) will not change the interest rates in its Monetary Policy Committee (MPC) meeting to be held in December.Kunal Kundu, economist at Societe Generale believes that “if the inflation rate decreases in the coming months, the possibility of interest rate cut by February 2025 may increase.”Upasana Bhardwaj, Chief Economist, Kotak Mahindra Bank believes that, “Despite the recent weak GDP data and decline in corporate earnings, the Reserve Bank will not change interest rates in the near future.”
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What will be the way forward?
The slowing down of India’s economic growth has affected both investment and consumption. This slow pace has further accelerated due to high inflation, uncertainty at the global level and weak income growth. Radhika Rao, senior economist at DBS Bank, says, “The current quarter is probably the lowest point of this cycle. But a slight improvement can be expected in the coming months.” Overall, many reasons like decline in consumption, weakness of mining and manufacturing sector and international environment are responsible for slowing down of India’s GDP growth rate. It is going to be a big challenge for the government to remove these and bring the economy back on the path of rapid growth.
