India’s Slowdown: Navigating Challenges and Seeking Resilience
A Sluggish Start to FY25
India’s economic journey in FY25 began on a muted note. The Q2 GDP growth, reported at 5.4%, marked the slowest pace in nearly two years. Gross Value Added (GVA) in Q2 stood at 5.6%, a significant drop from the 7.7% recorded in the same period last year. The industry GVA, a critical measure of manufacturing output, fell to a seven-quarter low of 3.6% yoy, reflecting the adverse impact of climatic disruptions on production.
Finding multibagger stocks is important for building wealth. Discover potential multi-baggers at Sovrenn Discovery.
Declining Investment and Consumption
India's Gross Fixed Capital Formation, a proxy for investments, grew by a mere 5.4% in Q2 compared to 11.6% in the year-ago period. Private consumption growth slowed to 6% from 7.4% in Q1, signalingdampened consumer confidence and constrained purchasing power in urban markets.
Silver Linings in High-Frequency Indicators
Despite these challenges, certain high-frequency indicators signal potential recovery in the second half of FY25. Retail vehicle sales rose by 11.21% y/y in November, reaching 3.2 million units. Similarly, petrol consumption climbed by 8.3% y/y in October, indicating a rebound in mobility and transport activity.
Investing has built huge wealth for several HNI investors. Learn investing FREE OF CHARGE at Sovrenn Education
External Volatility: A Looming Risk
The global economic environment continues to pose uncertainties for India. Comments from the US President-Elect regarding tariffs and de-dollarization have sparked debates on emerging market stability. While market volatility remains subdued, the rupee has faced renewed pressure, hitting record lows against the US dollar.
RBI’s Balancing Act
The RBI’s cautious stance is expected to continue, with a focus on maintaining adequate liquidity and managing interest rate differentials with global peers. The 10-year government bond yield is projected to remain between 6.5%-7.0%, influenced by global monetary policies.
Outlook for H2 FY25 and Beyond
The SBI CAPS report projects a stronger recovery in H2 FY25, supported by improving consumption patterns and stabilizing investment activity. However, external volatility, particularly in FY26, could test the resilience of India’s economy.
Conclusion
While FY25 began on a challenging note, India’s economic fundamentals remain strong. The second half of the fiscal year holds promise, provided both domestic and global headwinds are navigated judiciously. Policymakers must remain vigilant, as their decisions today will shape the trajectory of India’s growth and stability in the years to come.
Also Read: India Crosses USD 1 Trillion in FDI Inflows