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India’s Q2 GDP growth slowed to 5.4%, the lowest in nearly two years, driven by weak manufacturing, sluggish mining, and dampened consumer spending. Bright spots included agriculture and construction, which showed resilience amid broader economic challenges.
Reasons for the Decline:
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Manufacturing Slump: Growth dropped to 2.2% from 7% in the previous quarter.
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Rising Inflation: Consumer prices surged beyond 6%, squeezing disposable income.
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Stagnant Wage Growth: Weaker wage hikes hindered urban consumption.
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High Borrowing Costs: Expensive credit deterred investments.
Sector-Wise Performance:
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Mining: Contracted by -0.1% YoY.
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Electricity: Grew 3.3%, a sharp dip from 10.5% YoY.
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Trade & Hotels: Rose 6%, up from 4.5% YoY.
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Construction: Recorded 7.7% growth, down from 13.6% YoY.
Policy Implications:
The Reserve Bank of India faces a tough decision at its December 6 policy meeting: lower rates to spur demand or hold steady to rein in inflation. Political pressures and upcoming fiscal milestones add complexity to this decision.
Outlook:
While the government projects overall FY25 growth at 6.5%, the sharp Q2 dip raises concerns. Economists remain divided—some expect a rebound in the latter half, while others foresee a gradual recovery.
The economic slowdown calls for balanced measures to stimulate growth without exacerbating inflation. All eyes are on the RBI’s next move as India navigates its economic challenges.
Conclusion: The Q2 GDP fall reflects deeper structural issues, from manufacturing inefficiencies to high inflation. Strategic reforms and policy interventions will be crucial to sustain economic momentum.
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