Economic Growth
Slowdown - economy
NEWS: India’s GDP
growth slowed to 5.4% in the July-September quarter, down from 8.1%
in Q2 FY24 and 6.7% in Q1 FY25.
- Economists’
Outlook: Predicted moderation in growth with
doubts about recovery in H2 FY25.
WHAT’S IN THE NEWS?
Inflation and Fiscal Indicators
- Retail
Inflation: Rose to 6.2%, exacerbating
economic concerns.
- Fiscal
Deficit: Reached 46.5% of Budget
Estimates by October, reflecting lower capital expenditure and tax
collections.
Key Contributing Factors to the Slowdown
1. Moderation in Urban Demand
- The
CEA highlighted a dip in urban consumption, contributing to the
slowdown, but dismissed concerns of prolonged weakening in this segment.
2. Global Economic Challenges
- Adverse
Global Environment: Global headwinds have impacted
India's manufacturing sector, particularly in steel production.
- Dumping
in Specific Industries: Steel was notably affected,
with rising domestic consumption not matched by production growth.
3. Sectoral Performance
- Quarrying
and Manufacturing: Major contributors to the
supply-side slowdown.
- Gross
Fixed Capital Formation (GFCF): Lower investment
activity, primarily due to reduced capital expenditure by the
public sector.
Official Responses and Economic Analysis
Chief Economic Advisor's Statement
- One-off
Event: V. Anantha Nageswaran called the Q2 performance
a temporary setback and not indicative of long-term trends.
- GDP
Growth Outlook: Stressed that annual growth
projections (6.5%-7%) remain achievable pending further assessment.
Growth Projections Revised:
- CRISIL
and Barclays: Lowered FY25 growth forecasts to 6.5%
from earlier estimates of 6.8%.
- Short-Term
Slowdown: Some economists expect recovery in
later quarters driven by festive demand.
Sectoral Performance
Exports
- Decline
in Q2 FY25: Export growth slowed to 2.8%,
mainly due to weaker petroleum product exports and global uncertainties.
- High-Value
Manufacturing: Strong performance in electronics,
pharmaceuticals, and engineering goods provided some resilience.
Core Sector Industries
- Growth
in October: Output of eight core industries
increased by 3.1%, up from 2.4% in September.
- Cement and
steel industries saw output growth of 3.3% and 4.2%,
respectively.
Areas of Resilience
1. Agriculture Sector
- Despite
economic challenges, agriculture continued to deliver robust growth,
acting as a stabilizing factor.
2. Construction Sector
- The
sector displayed high single-digit growth, reflecting strong
performance in infrastructure development.
3. Rural Demand and Corporate Activity
- Improved
rural demand and growing order books of companies provide
hope for recovery in subsequent quarters.
Projections and Future Outlook
Full Fiscal Year Estimates
- The
CEA advised caution in drawing conclusions about full-year GDP growth,
emphasizing that:
·
First estimates
of full-year growth for FY25 will be available in January.
·
It is premature to suggest that the
expected 6.5% growth target is under threat.
Recovery Potential
- Some
factors contributing to the slowdown may ease, offering hope for recovery
in upcoming quarters.
- Nageswaran
reassured that there is no immediate risk to growth prospects in
the medium term.
Credit Growth Trends
Decline in Credit Growth
- Non-Food
Credit Growth: Slowed to 12.8% in October,
compared to 15.5% a year ago.
·
Agriculture & Allied Activities:
Credit growth dropped to 15.5% from 17.4%.
·
Services Sector:
Growth slowed to 14.1% from 20.4% due to reduced loans to NBFCs
and trade.
·
Personal Loans:
Growth moderated to 15.8%, primarily due to lower vehicle loans and
credit card usage.
Industry Credit Growth
- Increase
in October: Industry credit grew by 8%,
up from 4.8% a year ago.
·
Sectors like chemicals, petroleum, and
engineering saw improved credit demand.
Lending and Asset Quality Concerns
Tightening Credit Conditions
- ICRA’s
Outlook: Projected credit growth to slow
down to 12% in FY25, with lenders becoming more risk-averse.
- Potential
Risks: Rise in delinquencies expected, especially in
unsecured loans such as microfinance, credit cards, and personal loans.
·
Secured loan segments, like used vehicles
and small mortgages, are also under close watch for potential stress.
Regulatory Measures
- CARE
Ratings: Highlighted the impact of higher
base effects, tighter risk norms, and regulatory changes like the proposed
Liquidity Coverage Ratio (LCR).
Conclusion
India’s economic momentum has decelerated in Q2 FY25,
driven by weak domestic demand, slowing exports, and inflationary pressures.
However, resilient performance in certain industrial sectors and cautious
optimism from the government signal potential recovery in the coming quarters.