FM says slowdown in Q2 growth only a ‘blip’

Finance minister Nirmala Sitharaman has said that the “slower than expected” 5.4% economic growth in the July-September quarter, which followed the general election, is only “blip,” and “the economy will see healthy growth in the next quarters.”

Responding to a question in Parliament, Sitharaman said India has seen steady and sustained growth, with its gross domestic product (GDP) growth averaging 8.3% in the past three years.

The finance minister also pointed out that GDP growth was below 5.4% only in two quarters of the past three years.

“Out of the 12 quarters in the previous three years, GDP growth rate was lower than 5.4% in two quarters–quarter 4 of 2021-22 and quarter 3 of 2022-23…so let us pick on that one and predict the future,” she said.

Sitharaman also sought to place the slowdown “in the broader context” that the blip came immediately after the general election. The FY25 budget was presented on 23 July, after the general election, which was held in April-May.

Following the general election,” effectively it is from August that we are starting to give emphasis to many of the things, inclusive of capital expenditure, and therefore we are now talking within four months after the full regular budget was presented,” she said.

So the situation is no different from one seen in earlier years, when Parliament elections were conducted. So that’s a very important consideration,” she said.

She also pointed to the “differences in alignments of festivities,” this year.

During festivals, “there is a rise and dip in consumption and expenditure,” so between September and October this year, particularly for India, there was a “modest downward bias for Q2 growth because there were 15 days when people do not spend and which came very close to Dussehra when people spend and as a result that quarter got affected,” she said.

“Also a generalized slowdown in manufacturing is not expected. Out of 23 manufacturing sectors in the Index of Industrial Production (IIP), about half of them remain strong even now,” she added.

India’s gross domestic product (GDP) growth in the July-to-September quarter had slowed to 5.4%, the slowest in seven quarters, down from 8.1% in the year-ago quarter and 6.7% in the April-to-June quarter.

Analysts and economists had foreseen the slowdown on weak consumption, subdued government expenditure, and adverse weather impacts on key industries.

Analysts at Care Edge had said that the lower growth was “mainly because of poor industrial sector performance, specifically mining, manufacturing and electricity segment,” adding that a sharp moderation in investments was also noticed.

The Reserve Bank of India (RBI) earlier this month kept the policy rate unchanged, citing inflationary concerns and an uncertain growth outlook, while slashing its growth projections for the current fiscal to 6.6% from 7.2%, and retaining its policy stance at “neutral.”

Calls for a rate cut are growing after the sharper-than-expected decline in the July-to-September quarter growth.

Top ministers in Prime Minister Narendra Modi’s cabinet, including Sitharaman and trade minister Piyush Goyal, have called for lower borrowing costs.

Inflation, which has been hovering above RBI’s 4% comfort zone, accelerated to a 14-month high of 6.21% in October.