NEW DELHI: India’s economic growth was slower than expected in the third quarter, hampered by weak expansion in manufacturing and consumption, likely increasing pressure on the central bank to cut interest rates.
Gross domestic product in the world’s fifth-largest economy grew 5.4 percent from a year in July to September, data showed on Friday, the slowest pace in seven quarters and less than that. Reuters A survey of 6.5 percent. It grew by 6.7% in the previous quarter.
Gross value added (GVA), a more stable measure of economic activity, also saw modest growth of 5.6%, down from 6.8% growth in the previous quarter.
India’s Chief Economic Adviser V Anantha Nageswaran told reporters that the growth rate was disappointing amid a challenging global environment.
The slowdown, seen across many sectors, was most pronounced in manufacturing, where year-on-year growth slowed from 7 percent in the previous quarter. It fell to 2.2 percent.
Economists say inflation, now hovering around 6 percent, is boosting demand for goods from soap to shampoo to cars, especially in urban areas.
Private consumer spending rose 6.0 percent in the last quarter from 7.4 percent a year ago.
Government spending also slowed despite a 4.4% year-on-year increase in July-September, compared with a 0.2% contraction in the previous quarter.
Aided by a good monsoon, agricultural output fared better, rising 3.5% compared to 2% growth in the previous quarter.
Red flags
Third quarter corporate earnings signaled a slowdown in the country.
More than 50% of the 44 firms in the blue-chip Nifty 50 index that reported earnings either missed analysts’ estimates or reported results in line with expectations, according to data compiled by LSEG.
Citi data showed that the growth in inflation-adjusted wage costs for listed Indian firms – a proxy for the earnings of urban Indians – remained below 2% for all three quarters to 2024, which That’s less than the 10-year average of 4.4%, Citi data shows.
The lower earnings cut sparked record foreign outflows of nearly $12 billion from Indian equity markets in October.
Pressure on RBI
Bond yields and overnight index swap rates, which are seen as indicators of interest rates, fell after the GDP release, signaling an increased likelihood of an interest rate cut in February.
However, a few economists said the Reserve Bank of India (RBI) may also consider a rate cut in December.
“After today’s (GDP) print, the RBI rate cut in December is very likely,” said Gaura Sen Gupta, economist at Mumbai-based IDFC First Bank.
India’s finance and commerce ministers have called for lower interest rates to help industries boost investment and build capacity, though Nageswaran kept his counsel to reporters.
RBI’s Monetary Policy Committee (MPC) kept its benchmark repo rate INREPO=ECI unchanged at 6.50% last month due to still high inflation, changing its policy stance to “neutral”.
The bank, which last cut rates in May 2020, announces its next policy decision on December 6.