India’s Economic Growth Slows to 5.4% in Q2 FY2024: Challenges and Implications

India’s economic growth witnessed a significant slowdown in the second quarter of the fiscal year 2024, with GDP expanding at just 5.4% compared to the robust 7.8% in the April-June quarter. This deceleration has raised concerns among policymakers, economists, and investors about the sustainability of India’s growth trajectory amid global and domestic challenges.

Key Drivers of the Slowdown

Several factors contributed to the decline in growth during the July-September period:

• Weak Demand in Key Sectors: The manufacturing and construction sectors, which drive employment and economic output, experienced slower growth due to subdued domestic demand and higher input costs.
• Monetary Policy Tightening: The Reserve Bank of India (RBI) maintained a cautious stance to manage inflation, keeping interest rates elevated. This affected borrowing costs, dampening consumer spending and private investments.
• Global Economic Uncertainty: External factors, including geopolitical tensions, a sluggish global recovery, and weaker exports, weighed heavily on India’s trade-dependent sectors.
• Agricultural Challenges: Unseasonal rainfall and erratic monsoons disrupted agricultural output, impacting rural consumption.

Sectoral Performance

Here is how key sectors performed in Q2 FY2024:

• Manufacturing: Slowed down to 3.6% growth from 5.7% in Q1.
• Services: Continued to perform well, led by IT, retail, and financial services, growing at 7.2%.
• Agriculture: Growth fell to 2.4%, reflecting the adverse impact of weather anomalies.

Implications of Slower Growth

The slowdown signals potential challenges for India’s ambitious goal of becoming a $5 trillion economy by 2025. It also puts pressure on the government to find ways to boost demand, enhance productivity, and attract investment.

Policy Measures to Revive Growth

To address these challenges, policymakers could consider the following strategies:

• Stimulating Domestic Demand: By introducing targeted fiscal stimulus, the government can encourage consumer spending and private investments.
• Boosting Exports: Strengthening trade partnerships and reducing barriers could help Indian exporters regain momentum in the global market.
• Infrastructure Development: Continued investment in infrastructure projects can create jobs and provide long-term economic benefits.
• Rural Support: Introducing measures to stabilize agricultural output and support rural income could revive rural demand, a critical driver of overall growth.

The Road Ahead

While a 5.4% growth rate is still commendable compared to many global economies, it highlights the need for strategic interventions to ensure long-term, inclusive growth. India remains a strong contender for global economic leadership, but the coming quarters will require careful navigation through domestic and international headwinds.

This slowdown serves as a reminder of the delicate balance required to manage inflation, support growth, and sustain economic momentum. As we approach the next fiscal year, the focus must remain on resilience and reform to unlock India’s true economic potential.