Q2 growth ‘a temporary blip’, no generalised slowdown in factories, Finance Minister asserts

Finance Minister Nirmala Sitharaman on Tuesday dismissed concerns about a cyclical growth slowdown and a generalised downturn in India’s manufacturing sector, terming the disappointing 5.4% second quarter growth numbers as a ‘temporary blip’ caused by a multitude of factors, including the conduct of the general elections and the alignment of festival calendars this year compared to 2023-24.

Responding to the debate in the Lok Sabha on the first batch of Supplementary Demands for Grants for 2024-25, that entail a net cash outgo of ₹ 44,182.87 crore, Ms. Sitharaman also asserted that the Union Government remains committed to better management of food inflation, where prices of some food products are volatile owing to weather vagaries.

The Minister said she is optimistic about further ‘softening of food inflation pressures’ in light of an expected increase in kharif food grain output as per the first advance estimates of farm output in 2024-25, even as the government is making efforts to build buffers for key food items such as cereals and pulses. She also pointed to the Centre’s efforts to provide essential commodities like Dal, Atta, at an affordable price, and distributing onions, rice, tur dal, wheat flour, gram at subsidised prices.

Arguing that the NDA’s record has been better on inflation management in the past 25 years than the UPA’s decade in office between 2004 and 2014, Ms. Sitharaman said that core inflation which excludes volatile food and energy prices, is at a decadal low.

Noting that India’s real growth rate in this year has been 6.7% and 5.4% in the first and second quarters (Q1 and Q2) of 2024-25, the Minister conceded that the Q2 rate is slower than was expected.

“The second quarter has been a challenging one for India and most economies in the world. In the last three years, India’s GDP growth rate has averaged 8.3%. This is outstanding, I don’t want to judge myself or the ministry, but you can compare it with the world. India has been the fastest growing major economy of the world and the credit goes to the people of India… and the leadership that puts policy upfront and responds to people and their aspirations,” the minister said.

“Out of the 12 quarters in the previous three years, GDP growth rate was lower than 5.4% in two quarters – Q4 of 2021-22, and Q3 of 2022-23. So it is important to understand that this drop happened in just two of the last 12 quarters. Let us not pick one number and predict the future, there has been a sustained growth…” she pointed out.

She also said that the regular Union Budget was passed in the middle of August 2024, so effectively, the implementation of new projects started after that, which is no different from earlier years when parliamentary elections were conducted.

“The government believes that the trend in Q2 is only a temporary blip and the economy will see healthy growth in the next quarters. Also, a generalised slowdown in manufacturing is not expected as it is restricted to few sections only,” she underlined, calling for the ‘blip to be understood in the broader context’.

“Out of 23 manufacturing sectors in the IIP, about half of them remain strong even now, so we need to put this in context. Capital expenditure of the Union government has grown by 6.4% between July and October 2024, so I am very optimistic about improved performance going forward,” Ms. Sitharaman averred.

She also cited the differences in alignments of festivities between last year’s September and October months and the current year, that created a “modest downward bias” because there were 15 days when people do not spend and it came very close to Dussehra when people spend. “So that quarter got affected by a good spending fortnight and a not-so-good spending fortnight both occurring in that quarter itself,” the minister explained.