India Retains World’s Fastest-Growing Economy Status

India’s economy clocked a GDP growth rate of 5.4 per cent for the second quarter (July-September) of the current financial year, according to the data released by the Ministry of Statistics on Friday. 

Although the GDP growth has slowed during the second quarter, India still remains the fastest growing major economy in the world as China recorded a 4.6 per cent growth during the July-September quarter.

Despite sluggish growth observed in Manufacturing (2.2 per cent) and Mining & Quarrying (-0.1 per cent) sectors in Q2 of FY 2024-25, real gross value added (GVA) in H1 (April-September) has recorded a growth rate of 6.2 per cent.

The agriculture and allied sector has bounced back by registering a growth rate of 3.5 per cent in Q2 of FY 2024-25 after sub-optimal growth rates ranging from 0.4 per cent to 2 per cent observed during previous four quarters.

In the construction sector, sustained domestic consumption of finished steel has resulted 7.7 per cent and 9.1 per cent growth rates respectively in Q2 and H1 of FY 2024-25, according to the official statement.

The tertiary sector has clocked a growth rate of 7.1 per cent in Q2 of FY 2024-25, as compared to the growth rate of 6 per cent in Q2 of the previous financial year.

In particular, Trade, Hotels, Transport, Communication & Services related to Broadcasting has seen a growth rate of 6 per cent in Q2 of FY 2024-25 over the growth rate of 4.5 per cent in Q2, 2023-24.

Another positive feature observed in the Private Final Consumption Expenditure has witnessed a growth rate of 6 per cent and 6.7 per cent respectively in Q2 and H1 of the FY 2024-25 over the growth rate of 2.6 per cent and 4 per cent in Q2 and H1 of the previous financial year.

Private consumption accounts for 60 per cent of the country’s GDP and the acceleration in the growth rate augurs well for the future.

Government Final Consumption Expenditure has also rebounded to a growth rate of 4.4 per cent after having slowed in the previous quarter due to the Lok Sabha elections.

India’s economic growth slowed to 6.7 per cent year-on-year in the April-June quarter as a decline in government spending during national elections weighed, data showed on Friday, but it remained the world’s fastest-growing major economy.

The rise in gross domestic product was less than 7.8 per cent growth in the previous quarter.

Still, it was faster than 4.7 per cent growth in China, Asia’s biggest economy, in April-June, and India’s slowdown is expected to be temporary as economists forecast that easing inflation and a pickup in government spending will shore up growth in the coming months.

The Gross Value Added (GVA), seen by economists as a more stable measure of growth, increased by 6.8 per cent in April-June from a year earlier, compared to 6.3 per cent in the previous quarter.

Consumer spending, which constitutes about 60 per cent of GDP, rose to a seven-quarter high of 7.4 per cent in April-June from a year earlier, compared to 4 per cent in the previous quarter. Capital investments also rose by 7.4 per cent compared to 6.5 per cent in the previous quarter.

Looking ahead, food inflation to ease while the growth outlook for the economy is “cautiously optimistic” for the coming months as the agricultural sector is likely to benefit from favourable monsoon conditions, increased minimum support prices and adequate supply of inputs, according to the Finance Ministry’s monthly economic review released this week.

Amid a clouded global background, and after a brief period of softening momentum over the monsoon months, many high-frequency indicators of economic activity in India have shown a rebound in October. These include indicators of rural and urban demand and supply side variables like Purchasing Managers’ Index and E-way bill generation, the report states.

On the employment front, the formal workforce is expanding, with notable increases in manufacturing jobs and a strong inflow of youth into organised sectors, it added.

The Reserve Bank of India (RBI) has also maintained its GDP growth forecast for the current fiscal year at 7.2 per cent.

“India’s growth story remains intact as its fundamental drivers – consumption and investment demand – are gaining momentum. Prospects of private consumption, the mainstay of aggregate demand, look bright on the back of improved agricultural outlook and rural demand.

“Sustained buoyancy in services would also support urban demand. Government expenditure of the Centre and the states is expected to pick up pace in line with the Budget Estimates. Investment activity would benefit from consumer and business optimism, the government’s continued thrust on capex and healthy balance sheets of banks and corporates,” RBI Governor Shaktikanta Das said while presenting the monetary policy review last month.