India GDP growth in Q2 may slow to 6.5%: SBI

India’s gross domestic product (GDP) growth may slow to 6.5% in the second quarter of the fiscal year before rebounding to 7.2-7.3% in the third quarter, State Bank of India economists said in a report.

The GDP had expanded by 6.7% in the April-June period, the lowest pace in at least 15 quarters, leading several analysts to downgrade their growth expectations for the full fiscal year to under 7%. The Reserve Bank of India expects Indian economy to grow by 7.2% this year.

“There is some incipient pressure evident on the domestic economy. Basis our analysis of 50 meaningful leading indicators (both consumption as also demand centric), a dip looks plausible across select cohorts of agri, industry and services in Q2,” the report said.

Several high-frequency indicators showed aggregate demand continued to grow but with a slower momentum than in the preceding quarters. For instance, domestic passenger vehicle sales, an indicator of urban demand, and other indicators of consumption and demand, such as diesel, electricity, and bitumen, have eased. Transport and communication indicators such as passenger and freight traffic at airports and toll collection are showing traction, the report said.

Considering the leading indicators, the October-December and January-March 2025 quarters will push India’s GDP growth closer to 7%.

“A blip in growth in Q2 might be an impasse; tailwinds of recovery are now reinvigorated by a surge in rural demand,” Soumya Kanti Ghosh, chief economic adviser at SBI, said in the report.

The “buoyant global economy appears susceptible to certain degrees of downward pressure,” with recent spikes in geopolitical tensions taking a toll, the report said.

The report said a recent increase in rural demand/consumption, juxtaposed against the somewhat declining urban demand/consumption, with 85% of rural indicators showing acceleration as against 73% of urban indicators, could be indicative of shifting contours of urban demographics, with marked preferences to Q-commerce (Quick Commerce, which is not being appropriately mapped) outweighing consumption decisions to some extent.

The report said “regulatory tightening on unsecured lending and roadblocks hindering the rollover or refinancing of debt through unsecured credit are punctuating the unwarranted exuberance built up post-pandemic, more so in the urban ecosystem.”

“Policymakers should avoid future policy mistakes like farm loan waivers, as they will distort borrowers’ credit culture and will not serve the purpose in the medium to long term,” Ghosh said in the report.

Sounding a word of caution, he added that only minimum support price-driven agricultural growth is fiscally extravagant and results in extreme groundwater depletion.