GDP slowdown in Q2FY25 is temporary, recovery expected in upcoming quarters: FICCI President

The slowdown in India’s GDP growth to a near two-year low of 5.4% in the July-September quarter is temporary, according to Harsha Vardhan Agarwal, President of the Federation of Indian Chambers of Commerce and Industry (FICCI) and Managing Director of Emami. Agarwal expects a rebound in the October-December and January-March quarters, driven by increased capital expenditure and easing inflationary pressures.

Speaking to CNBC-TV18, Agarwal attributed the lower growth rate to reduced capital expenditure during the April-June quarter (Q1FY25) due to elections, coupled with muted consumption caused by high food inflation.

“Going forward, I think the capex should increase in Q3FY25 and substantially in Q4FY25, which should certainly help in growing the growth rate further,” Agarwal said. He projects overall GDP growth for the fiscal year to be between 6.5% and 7%.

Regarding slowing urban demand, Agarwal noted a marked dichotomy between rural and urban consumption trends. “Rural is bouncing back robustly, supported by good kharif output. However, the main challenge lies in middle-class and lower-middle-class consumption,” he explained.

Agarwal highlighted that 75% of Indian retail purchases are food and grocery-related, making them highly sensitive to price fluctuations. Recent inflation in staples such as oils and vegetables has curbed discretionary spending, impacting overall consumption. “As inflation comes under control, we should see growth in consumption bounce back,” he added.

FMCG demand, which has been under pressure due to the slowdown in middle-class consumption, is expected to recover gradually. “Rural is doing well, and premium products are performing strongly. It is just the middle class where we are seeing the impact. As inflation comes under control, I expect things to improve from the next quarter,” Agarwal stated. He predicted that FMCG demand would return to normal within two to three quarters.

Addressing concerns the Chief Economic Advisor raised about stagnant wage growth affecting consumption, Agarwal emphasised that companies understand the importance of competitive pay to retain talent. “For the industry, manpower is the biggest asset. Companies know they must pay their people well to retain quality talent in today’s competitive environment,” he remarked. However, he refrained from commenting further without reviewing the specific study the Chief Economic Advisor cited.