India’s Q2 FY25 GDP growth slowed to a seven-quarter low of 5.4%, with industrial weaknesses offset by resilient agriculture and services. Experts predict 6.5-6.7% full-year growth amidst mixed recovery signals.
India’s GDP growth in Q2 FY25 marked its lowest point in seven quarters, at 5.4%, reflecting sharp deceleration across key industrial sectors. While the downturn raises concerns about meeting annual growth targets, optimistic projections for H2 FY25 provide a glimmer of hope.

Source: Bloomberg
Slump in Industrial and Mining Sectors
Industrial performance emerged as a significant drag on GDP growth:
– Mining contraction: Fell by 0.1%, marking the first decline in two years.
– Manufacturing slowdown: Growth dropped sharply to 2.2%, compared to 7% in Q1.
– Utilities sector: Growth decelerated from 10.4% to 3.3%, reflecting challenges in electricity production.
The muted industrial output also weighed heavily on Gross Value Added (GVA), which grew at a modest 5.6%, with six of eight sectors underperforming the previous quarter. Analysts cite adverse rainfall, supply chain disruptions, and cautious government spending as contributing factors.
Mixed Signals from Private and Government Consumption
On the demand side, private and government spending painted a mixed picture:
– Private consumption: Slowed to 6% in Q2 from 7.4% in Q1, despite a favorable base.
– Exports: Declined from 8.6% to 2.8%, reflecting weaker global demand.
– Government capex: Contracted by 15% at the central level and 11% at the state level, despite being a key growth driver earlier in the year.
Investments, measured by Gross Fixed Capital Formation (GFCF), fell to a six-quarter low of 5.4% growth. As a share of nominal GDP, GFCF slipped to 30.8%, the weakest in seven quarters. Analysts stress the need for private sector participation to complement government efforts in driving investment-led growth.
Services and Agriculture Shine Amidst Weakness
Despite challenges, agriculture and services offered support to overall GDP:
– Agriculture GVA: Grew by 3.5% in Q2, maintaining momentum from the previous quarter. Analysts expect full-year agricultural growth to surpass 4%, up from 1.4% in FY24.
– Services sector: Excluding utilities, services growth held steady at 7.1%, with robust contributions from trade, hotels, and communication services.
Government consumption also rebounded, growing by 4.4% compared to a contraction of -0.2% in Q1. Analysts link this uptick to election-related expenditures and higher rural spending.
H2 FY25: Challenges and Hopes
Experts foresee modest recovery in H2 FY25, with full-year GDP growth projected at 6.5-6.7%, slightly below earlier estimates of 6.8%.
Drivers of Recovery
– Government capex push: Increased infrastructure spending is expected to gain momentum.
– Agricultural output: Healthy monsoons and improved crop production should bolster rural consumption.
– Moderating inflation: Food inflation is expected to ease by Q4, supporting household spending.
Risks to Recovery:
– Geopolitical uncertainties may continue to weigh on global demand and investor sentiment.
– Industrial growth remains vulnerable to supply chain bottlenecks and policy delays.
To achieve even the lower end of the government’s growth target of 6.5%, H2 FY25 GDP growth needs to average over 6.9%, a challenging prospect given current headwinds.
RBI’s Dilemma: Growth vs Inflation
The weak GDP numbers complicate matters for the Reserve Bank of India (RBI), which has maintained its policy rate at 6.5% for ten consecutive meetings. While growth concerns argue for rate cuts, inflation risks may prevent immediate action. The Monetary Policy Committee is scheduled to meet in December to deliberate on this delicate balance.