India's Economic Slowdown: A Deeper Dive into Q2 Challenges

India's economy witnessed a significant slowdown in Q2 of FY25, expanding by only 5.4% against an anticipated 6.5%. This was largely due to weak urban consumption, high food prices, and reduced manufacturing growth. Despite these challenges, experts predict a pause in RBI's policy rate changes.

India's economic growth decelerated significantly in the second quarter of the fiscal year, data showed Friday, with GDP expanding by only 5.4% year-on-year, a steep decline from a Reuters poll estimate of 6.5%. The slowdown was primarily attributed to weak urban consumption and rising food prices.

Chief Economist Upasna Bhardwaj of Kotak Mahindra Bank noted the disappointing corporate earnings and the manufacturing sector's struggles. Despite expectations of festive-related activity boosting second-half growth, projections for the overall year suggest a 100 basis point reduction from the Reserve Bank of India's 7.2% estimate.

In light of these findings, economists like Sakshi Gupta from HDFC Bank maintain the RBI will likely hold the policy rate. However, the likelihood of a rate cut in February has grown, as reduced manufacturing growth and sluggish consumption brought on by heavy rains and real income stagnation take their toll on the economy's performance.