India‘s Economic Growth Slows, Raising Concerns for Future Growth
India’s economy expanded by a weaker-than-expected 5.4% in its second fiscal quarter, ending September. The figure was significantly lower than economists’ estimations, coming in well below the 6.5% growth predicted by analysts surveyed by Reuters and below the Reserve Bank of India’s forecast of 7%.
This marks the slowest growth rate for the Indian economy since the final quarter of 2022, highlighting sluggish performance in key sectors like manufacturing and mining, according to the country’s statistics agency.
The disappointing economic results quickly sent ripples through the bond market, with the yield on India’s 10-year sovereign bond dropping to 6.74% from its pre-release level of around 6.8%.
The weak GDP print has further fueled speculation about the future direction of interest rates in India. The Reserve Bank of India’s Monetary Policy Committee is scheduled to review rates between December 6 and 8.
While many economists anticipated another hold within the current cycle, maintaining the repo rate at 6.5% for an eleventh consecutive time, this slowdown might trigger a shift in discussions.
Harry Chambers, assistant economist at Capital Economics, commented on the situation, stating that the registeration revealed that ”
Weakness was broad based,” suggesting broader economic challenges beyond a few specific sectors.
Following the release of the economic data,
Speaking to CNBC’s “Squawk Box Asia” before the GDP release, Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, predicted that India’s economy is likely to slow down, though she does not expect it to outright collapse in 2025.
While she expects growth to reach 6.4% in 2025, she recognized that this prognosis might be overly optimistic, adding that the actual figure could be lower, perhaps even dipping as low
as 6%.
However, even if growth registers closer to 6%, Garcia Herrero expects the outcome to come without significant concern, stating, “Not a bit problem, but it’s not welcome.”
Separately, the RBI projected that GDP growth for Fiscal year 2024 ending in March 2025 will rebound to a higher rate of 7.2%.
Addressing the potential impact of a second term for President-elect Donald Trump
on India’s economy, Garcia Herrero suggested the country would not be at the center of the ongoing
shuffling of global supply chains.
She believed that the United States would likely focus on imposing tariffs on imports from other countries.
What specific monetary or fiscal policies could the Indian government implement to address the slowdown?
## India’s Slowing Growth: A Cause for Concern?
**Host:** Welcome back to the show. Joining us today is economist Dr. Priya Sharma to discuss India’s recent GDP figures, which paint a somewhat worrying picture. Dr. Sharma, thanks for being here.
**Dr. Sharma:** Thank you for having me.
**Host:** So, India’s economy grew by 5.4% in the last quarter, significantly lower than anticipated. What are your thoughts on these numbers?
**Dr. Sharma:** Yes, this growth rate is a cause for concern. It’s the slowest we’ve seen since late 2022, falling short of both market expectations and the Reserve Bank’s own forecast. This slowdown is particularly worrisome because it’s driven by weakness in crucial sectors like manufacturing and mining. These are sectors that typically drive job creation and broader economic growth, so their underperformance is a red flag. [[1](https://www.worldbank.org/en/news/press-release/2023/04/04/indian-economy-continues-to-show-resilience-amid-global-uncertainties)]
**Host:**
You mentioned the Reserve Bank. How might these figures influence their upcoming interest rate decision?
**Dr. Sharma:**
The bond market has already reacted, with yields on 10-year sovereign bonds dropping. This suggests investors are anticipating a pause or even a potential cut in interest rates. The RBI will be carefully considering these figures alongside inflation data before making their move. If growth continues to slow, they may be inclined to ease monetary policy to stimulate the economy.
**Host:**
Looking ahead, what are the key challenges and opportunities facing the Indian economy?
**Dr. Sharma:**
The global economic landscape remains uncertain, with high inflation and geopolitical tensions continuing to pose challenges. However, India has shown resilience in the past [ [1](https://www.worldbank.org/en/news/press-release/2023/04/04/indian-economy-continues-to-show-resilience-amid-global-uncertainties)]. Domestically, focusing on structural reforms to boost manufacturing, attract foreign investment, and create a more favorable business environment will be crucial.
**Host:** Dr. Sharma, thank you for sharing your insights. This is definitely a situation to watch closely in the coming months.
**Dr. Sharma:** You’re welcome.
