India’s economic growth took a significant hit in the July-September quarter (Q2FY25), with GDP expanding by just 5.4%, the slowest pace since Q3FY23. This marked a sharp drop from the 8.1% growth recorded in the same quarter last year and a decline from the 6.7% growth seen in the previous quarter (Q1FY25). The performance fell short of market expectations, which had pegged growth closer to 6.9%.

The Gross Value Added (GVA) for the quarter grew by 5.6%, also below the forecast of 6.5%. This was a steep decline from the 7.7% growth recorded in the corresponding quarter last year and 6.8% in Q1FY25. Sectoral analysis showed mixed trends:

Agriculture: A bright spot, with growth improving to 3.5%, up from 1.7% year-on-year and 2% in the previous quarter.

Mining: Contracted by -0.1%, a stark reversal from the 11.1% growth seen a year ago and 7.2% in the preceding quarter.

Manufacturing: Slowed significantly, posting just 2.2% growth, a sharp drop from 14.3% year-on-year and 7% quarter-on-quarter.

The National Statistics Office attributed the slowdown to a combination of high food inflation and rising borrowing costs, which weighed heavily on household consumption. Urban demand, in particular, remained subdued despite increased government spending during the quarter. The economic impact of high interest rates by the Reserve Bank of India (RBI) further dampened consumer spending and private sector investment.

Additionally, the approaching general elections reportedly disrupted routine government activities, curbing expenditure and delaying project implementation.

This GDP figure is the slowest expansion in five quarters and highlights the impact of external and internal pressures on India’s economic resilience. Notably, real GDP growth for Q1FY25 stood at 6.7%, lower than the 8.2% recorded in the same period last year.

India plans to introduce a new GDP series with 2022-23 as the base year, alongside a revised Consumer Price Index (CPI) series, by February 2026. This is expected to provide a clearer and more comparable picture of economic performance going forward.

The slowdown strengthens the case for a more dovish monetary policy approach by the RBI. While high interest rates have curbed inflation to some extent, they have also constrained consumer and corporate spending. With signs of resilience in certain sectors, such as agriculture, a recalibration of policy may be on the horizon to balance growth and inflationary pressures.