India’s Q2 FY25 real GDP growth fell to a seven-quarter low of 5.4% YoY. The economic slowdown in Q2 was driven by a broad-based deceleration in investment and private consumption, along with a significant drag from “discrepancies.” We expect a recovery in the second half of FY25, supported by a positive outlook for rural demand and a pick-up in government spending.

We reiterate the need for a countercyclical policy response to address the slowing economic momentum. A policy rate cut will have to wait for significant moderation in inflation (expected by February 25), but in the interim, the RBI could consider supporting the economy in the near term through targeted interventions (to boost credit flow to specific sectors) and/or liquidity support.