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 are the primary internal and external factors contributing to the slowdown in India’s economic growth?
## India’s Economic Engine Stutters: Can It Still Become a Global Powerhouse?
**[Host]:** Joining us today is Dr. Priya Sharma, an economist specializing in South Asian economies. Dr. Sharma, the latest GDP figures paint a concerning picture of India’s economic growth. What are your initial thoughts on this 5.4% growth rate, especially considering the downgraded forecasts?
**[Dr. Sharma]:** The 5.4% growth rate is indeed a cause for concern. It falls significantly short of expectations and marks a slowdown compared to previous quarters. While India still boasts impressive growth compared to many developed nations, this dip raises questions about its trajectory towards becoming the world’s third-largest economy in the next few years, as projected by organizations like the World Economic Forum [[1](https://www.weforum.org/stories/2024/01/how-india-can-seize-its-moment-to-become-the-world-s-third-largest-economy/)].
**[Host]:** The slowdown appears to be largely driven by sluggish performance in manufacturing and mining. What factors could be contributing to this weakness?
**[Dr. Sharma]:** Several factors could be at play. Global economic headwinds, including supply chain disruptions and inflationary pressures, are undoubtedly impacting India’s export-oriented industries. Furthermore, domestic challenges such as infrastructure bottlenecks and bureaucratic hurdles could be hindering investment and production in key sectors.
**[Host]:** The bond market reacted swiftly to the GDP release. What does this signal about investor sentiment towards India’s economy?
**[Dr. Sharma]:** The drop in the yield of India’s 10-year sovereign bond suggests that investors are reacting cautiously. This could indicate a decline in confidence about short-term growth prospects and a potential shift towards safer assets.
**[Host]:** Looking ahead, what are the key concerns and potential opportunities for India’s economic outlook?
**[Dr. Sharma]:** The Reserve Bank of India faces a tough balancing act. Addressing inflation while simultaneously stimulating growth will be crucial. Furthermore, structural reforms aimed at bolstering infrastructure, enhancing productivity, and attracting foreign investment will be vital for India to achieve its ambitious growth targets. However, India’s youthful demographics, growing middle class, and tech-savvy population remain significant assets that can fuel future growth if harnessed effectively.
**[Host]:** Thank you, Dr. Sharma, for your insights. The coming months will be crucial as India navigates these economic challenges and strives to realise its potential as a global economic powerhouse.
