India recorded an 8.2% GDP growth in the second quarter, driven by strong manufacturing and services sectors. However, the International Monetary Fund has assigned a 'Grade C' to the country's national income accounting practices, highlighting structural weaknesses. This assessment underscores questions about the long-term sustainability of the growth amid uneven sectoral performance.
India's economy expanded by 8.2% in the second quarter of 2024-25, with projected output reaching ₹48.63 lakh crore. This growth reflects genuine momentum, as real Gross Value Added rose from ₹82.88 lakh crore to ₹89.41 lakh crore across agriculture, industry, and services. Manufacturing grew by 9.1%, indicating increased industrial demand and higher factory capacity utilization. The services sector, comprising 60% of GDP, advanced 9.2%, with financial services up 10.2% due to robust credit activity and urban demand.
Private Final Consumption Expenditure increased by 7.9%, signaling stronger household spending. Agriculture saw a 3.5% rise, aided by fuller reservoirs and better horticulture yields, contributing to modest rural income improvements. Nominal GDP grew 8.8%, keeping inflation in check, which eased below target levels by the end of 2024-25. Banks supported this with significant credit expansion, maintaining excess capital buffers. Fiscal consolidation continued through strong GST and direct tax collections, while the external sector stayed stable with a small current account deficit and healthy services exports.
Despite these positives, challenges persist. The IMF's 'Grade C' rating points to flaws in national income accounting, including an outdated 2011-12 base year, reliance on wholesale price indices for deflators, excessive single deflation, discrepancies between production and expenditure approaches, lack of seasonally adjusted data, and incomplete state-level data post-2019. Mining output stagnated at 0.04% due to a prolonged monsoon, and electricity generation grew only 4.4% amid a mild winter reducing demand. Sectoral shares show primary at 14%, secondary at 26%, and tertiary at 60%, but employment remains skewed toward low-productivity agriculture and services.
The Reserve Bank of India notes risks to exports from trade protectionism and geopolitical tensions. While the rupee appeared stable, it faced pressures from a strong U.S. dollar and volatile foreign capital flows. These factors suggest that while short-term growth is robust, institutional and structural reforms are needed for sustained progress.
