Context:
India’s real GDP grew by 6.2% in Q3FY25, which is improved against the revised 5.6% in Q2FY25, but still among one of the slowest growth rates since Q4FY23. The poor performance of manufacturing activities and the services sector amid uncertainties surrounding global trade is rendering the government’s 6.5% full year growth target increasingly difficult to attain.
Key Highlights
- Sectoral Performance
- Growth was mainly due to the primary sector, which grew sharply to 5.2% from 1.8% last year.
- However, manufacturing (4.8%) and services (7.4%) slowed sharply relative to 12.4% and 8.3% in the previous year.
- Global Trade Challenges
- Proposed 25% U.S. import tariffs on steel and pharmaceuticals might pose a major risk.
- About 31% of India’s $8.7 billion pharma exports go to the U.S., and any potential shifts in the production towards the U.S. will be detrimental to trade revenue.
- Consumption & Spending
- Not to forget, government consumption saw a tremendous rise of 8.3% (against 2.3% last year), as did private consumption, meanwhile, grew 6.9% (against 5.7%), aided by moderating inflation.
- Inflation & RBI Outlook
- For its part, the Reserve Bank expects inflatory pressure to average around 4.8% in FY25, easy to 4.2% the following year in FY26, in keeping with its 4.0% medium term target. Questions remain over data veracity, though.
- NSO’s Data Revision
- The National Statistical Office (NSO) has done some tinkering with its data collection methods, in order to allow some “industry wise/institution wise detailed information.” Data reliability, however, is under serious doubts, given the lack of transparency on the actual consequences.
While strong government spending and improved consumption provide some respite, there are severe challenges from global trade pressures, slow industrial growth, and worries concerning data credibility. Therefore, the 6.5% full year growth target will require a show of greater strength against external economic shocks and engagement of domestic demand.
