India's Q2 FY-25 GDP growth rate-why muted?

India's Q2 FY25 GDP figures reveal a significant economic slowdown, falling to 5.4% year-on-year growth—a substantial drop from the projected 6.6%. This underperformance stems from a broad weakening across investment and consumption sectors. Private investment significantly lagged expectations, growing at only 5.4% compared to 7.5% in Q1, despite increased government spending. Consumer spending also weakened, declining to 6% year-on-year growth from 7.4% in Q1, primarily due to sluggish urban demand hampered by wage stagnation and elevated food prices. Export growth decelerated sharply (2.8% YoY from 8.7% in Q1), while imports contracted.

The Gross Value Added (GVA) mirrored this trend, slowing to 5.6% year-on-year. Industrial activity suffered a particularly sharp decline, with mining and manufacturing sectors experiencing contractions. However, the agricultural sector showed some positive growth. While the services sector maintained its growth momentum, high-frequency indicators pointed to persistent weakness in private consumption, especially in urban areas.

Consequently, growth forecasts have been revised downwards. The FY25 growth projection is now anticipated to be significantly lower than the initial 7.2% estimate, possibly around 6.3%, reflecting the weak first half of the fiscal year (6% YoY). While a modest improvement is expected in the second half, the FY26 forecast has also been lowered to 6.6% from the previous estimate of 6.8%. Inflation remains a key concern, with the 6.2% rate creating headwinds for potential monetary policy easing. While measures to improve liquidity may help offset tighter financial conditions, the RBI is likely to prioritize monitoring inflation trends before considering interest rate cuts.

In essence, India's economy faced a steeper-than-expected slowdown in Q2 FY25, primarily driven by weak investment of both Government and the private and the falling urban consumption. Although the agricultural sector displayed strength and government spending increased, the overall economic outlook remains cautious, highlighting the need for potential policy interventions to bolster growth and mitigate the effects of constrained liquidity.

IN the above chart we have tried to look at how GDP Annual Growth rate every quarter , Gross Fixed Capital formation and Consumer spending data have correlated.It shows high combined Consumer spending coupled with high GFC formation has always pushed up GDP growth with a lag effect of one or at the most two quarters.A weak GFC formation + Weak Consumer spending is pulling down GDP growth also with a lag effect.

So, IMHO, to push up Consumer spending, GOI should look at Fiscal push by slashing the Excise on Oil-Petrol & Diesel by atleast Rs10 since Inflation itself is a Tax and RBI should also address it through appropriate Rate and/or Liquidity decisions without any delay.Any undue delay in Rate cut can itself feed into Inflation.

Comments

Hanuman and Ganesha!

The two major loved deities of the Hindu pantheon are Hanuman and Ganesha. Let us dwell into the concepts and significance of these two dieties. Ganesha, the son of Parvati and Shiv, is worshipped first before starting any new job or work. Even if you want to start writing or reading , you invoke the blessings of Lord Ganesha who goes under various names- Ganapathi, Vigneshwar, Vinayak, and Pillayar in Tamilnadu. Ganesha Gayathri, Pancharatnam are some of the important Ganesha mantras and hymns. Adi Ganesha idol is in a Temple near Tiruvarur in Tamilnadu with a human face.The mythological story says that Shiv slew His head and then fixed the head of the animal that He saw first after this beheading of His son. Ganesha after that with the elephant head is worshipped as the wisdom god by Hindus. Why only Hindus. He is worshipped in Indonesia where He finds Himself in their currency notes. He is considered the destroyer of evil in Japan. In Mexico, Ganesha idols were said to h...

Shrinking middle class in India?-Data show Growing Middle class!

Key Findings from the SBI Eco wrap Report(25th Oct 2024) Income Inequality is Decreasing : The report uses the Gini coefficient to demonstrate a decline in income inequality in India. The shift is most noticeable in lower income brackets, with a substantial portion moving into higher income groups. This aligns with a rightward shift in the income distribution curve. ITR Filings are Increasing : The number of ITR filings has significantly increased, indicating a growing tax base. This growth is particularly evident in previously untapped states (Uttar Pradesh, Bihar, etc.), suggesting broader economic participation.Below is the chart which shows No. of tax payers in Different income Group in AY2014 and AY2024 which clearly shows that the bulk have moved up from Rs.1.5lac to Rs5 lac to Rs.2.5 lac to Rs.10 lac(highlighted in yellow colour) Growth in 'Crorepati' Taxpayers : The number of taxpayers earning over ₹1 crore has increased significantly, highlighting the expansi...

State of the Indian Economy: Navigating Global Uncertainties

The global economic landscape is rapidly evolving, with trade policy uncertainty emerging as the key driver of the near-term outlook. Recent US tariff announcements have stoked fears of a global trade war, with countries still working out their appropriate responses in this uncertain environment. Despite these external headwinds, the Indian economy has exhibited marked resilience. Although the weakening global economic outlook could impact overall growth through weaker external demand, India's domestic growth engines - consumption and investment - are relatively less susceptible to external pressures. Prospects for the farm sector have been boosted by the forecast of an above normal southwest monsoon for 2025, which could augment farm incomes and keep food prices under check. Headline inflation moderated to a 67-month low of 3.3% in March, mainly due to moderation in food prices. Global Economic Outlook: Trade Tensions and Market Volatility The global economic landscape is facing ...

We are what we are !!

Search This Blog