RBI’s GDP projections on test as India’s Q2 GDP growth falls short

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Subscribe to enjoy similar stories. The Indian economy experienced a big jolt in the July-September quarter of 2024-25, with the real GDP growth rate slowing to 5.36%, the lowest in seven quarters, data released by the statistics ministry on Friday showed. Not only was this sharply lower than the projection of 7% by the Reserve Bank of India but also lower than the median estimate of 6.5% by 26 economists in a Mint poll.

The second-quarter data raises concerns about whether India can achieve the central bank’s growth forecast of 7.2% for FY25, which it had retained in its October policy meeting. (The next meeting is due next week, where the projections may be reset.) A back-of-the-envelope calculation suggests GDP growth will have to average 8.3% in the second half of the year to align with the RBI’s full-year projection. “The high-frequency data suggests that festival-linked revival in activity may provide a marginally better growth figure in the second half but overall GDP growth for FY25 is going to be around 100 basis points lower than RBI’s estimate of 7.2%," said Upasana Bhardwaj, chief economist at Kotak Mahindra Bank.

"The GDP miss in the second quarter makes the ask rate very high in October-December for us to even reach 6.5%," added Madhavi Arora, chief economist at Emkay Global. In the past few years, RBI's report card of projections compared to actual GDP growth have been mixed. The actual GDP has both overshot and undershot the projections, often forcing RBI to revise its projections.