India’s economy expands by 5.4% in the last quarter fails to meet expectations

India’s economy grew by only 5.4% during its second fiscal quarter ending September. The slow growth was 1.1% below estimates by economists in a Reuters poll, 1.4% below the central bank’s prediction, and close to a two-year low.  

The country’s statistics agency recorded sluggish growth in the mining (-0.1%) and manufacturing (2.2%) sectors. The agency also noted nominal GVA growth of 8.1% and real GVA growth of 5.6% in Q2 of FY 2024-25. The weak GDP expansion could potentially negatively impact the country’s interest rate trajectory, reported CNBC. The Reserve Bank of India’s Monetary Policy Committee is scheduled to meet next month.

Economists predict India’s economy will slow in 2025

India’s economy expanded by 5.4% in its second fiscal quarter ending September, well below estimates by economists. https://t.co/QrxylCULx4 pic.twitter.com/3yf4sP8qf0

— CNBC International (@CNBCi) November 29, 2024

Alicia Herrero, chief Asia-Pacific economist at Natixis, predicted that India’s economy would slow in 2025 but not collapse. She added that Natixis had a growth projection of at least 6.4% for India in 2025. Herrero, however, did not clarify whether the forecast referred to fiscal or calendar year but pointed out that the print could also come in as low as 6%. She qualified it as ‘not a bit of a problem, but not welcome.’ 

Herrero also claimed that India was not really at the center of China’s reshuffling of the value chain when asked how she thought the country’s economy would fare under Trump’s incoming government.

“If I were the Trump administration, I would start [looking at tariffs for] Vietnam. That’s a much more obvious case.”

–Alicia Herrero

Herrero pointed out that China could make products in India for Indian consumption instead of exporting them. She added that this could help New Delhi avoid being hit by tariffs. 

Reserve Bank of India worries about more than just food inflation

According to the Economic Times, food inflation remained a persistent problem for the Reserve Bank of India. Governor Shaktikanta Das and his colleagues at the Monetary Policy Committee often viewed it as a critical factor in their rate-cutting decisions. The latest RBI bulletin, however, highlighted the gradual rise in core inflation as a new concern. The central bank pointed out troubling signs in India’s October CPI inflation in its ‘State of the Economy’ report. It noted that the increase in core inflation had raised its cautionary stance.

Staples and essential products largely defied the slowdown in consumption. They showed double-digit growth in volume sales. Industry executives reportedly implied that this was an indication of consumers maintaining their spending on daily household essentials. Notably, unlike in previous downturns, it offered hope for a recovery in demand. 

According to market researchers NielsenIQ and Kantar, volume sales of packaged goods like spices, pulses, edible oils, toothpaste, atta, and rice grew in the second quarter. Most companies, such as Adani Wilmar, Colgate, and Tata Consumer Products, expected this trend to continue into the October – December quarter.

A Systematix Institutional Equities report noted that the recovery in consumer demand that started back last month is still fueling optimism for a strong second half of FY25.

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