India Gets A Growth Shock

The Country's Gdp Has Hit Its Lowest Point In Nearly Two Years, Intensifying The Government's Challenge To Tackle The Ongoing Unemployment Crisis

- M.G. Arun

When he took over the reins of the government for a third consecutive term this summer, there were two key issues PM Narendra Modi had to address urgently-inflation and unemployment. They are believed to have cost his government a majority in the Lok Sabha election. However, five months into Modi 3.0, a third challenge seems to have surfaced-slowing economic growth-threatening to worsen the unemployment crisis.

India's gross domestic product (GDP) growth for the second quarter of FY25 was 5.4 per cent, down from 6.7 per cent in the first quarter and way below the 8.1 per cent in the second quarter of the previous fiscal. In fact, growth was the lowest in nearly two years. The weak performance in the second quarter could now drag India's full-year growth below expectations, including Reserve Bank of India (RBI) estimates. Goldman Sachs has revised its FY25 growth projection from 6.5 per cent to 6 per cent, Barclays from 6.8 per cent to 6.5 per cent, ICRA from 7 per cent to 6.5-6.7 per cent and Bank of Baroda from 7.3-7.4 per cent to 6.6-6.8 per cent-all estimates that fall short of the RBI's 7 per cent projection. It could mean a setback for the Modi government's ambitions to have India, currently the world's fastest-growing and fifth-largest economy, become the third largest behind the US and China by 2027. It just may take longer now.

India's chief economic advisor V. Anantha Nageswaran termed the latest data "disappointing", but asserted that the situation wasn't alarming. "India's potential GDP growth is in the range of 6.5-7 per cent and we should be able to achieve it on the back of things that we have done already in the past 10 years-whether it is in terms of augmenting the physical infrastructure or achieving financial inclusion," he said.

The fault lines