New Delhi: India’s economy is expected to have grown at its slowest pace in 18 months during the July-September quarter, as weak urban consumption, driven by surging food prices, outweighed the positive impact of increased government spending.
As per a report, a poll conducted by international news agency Reuters predicts a GDP growth rate of 6.5% year-on-year for the quarter, lower than the Reserve Bank of India’s (RBI) projection of 7% and the 6.7% growth recorded in the previous quarter. The Gross Value Added (GVA), another measure of economic activity, is estimated to have expanded by 6.3%, compared to 6.8% in the preceding quarter.
If confirmed, this would mark the third consecutive quarter of slowing growth, although India would still retain its status as the world’s fastest-growing major economy.
Urban Spending Weighs on Growth
Economists attribute the slowdown to weak private consumption, which accounts for approximately 60% of GDP. Factors such as elevated food inflation, higher borrowing costs, and stagnant real wage growth have dented urban spending.
Retail food prices surged by 10.87% year-on-year in October, significantly reducing household purchasing power. Meanwhile, high-frequency indicators such as industrial output, fuel consumption, and bank credit growth showed signs of weakening, alongside subdued corporate earnings.
Toshi Jain, an economist at J.P. Morgan, remarked that while government spending had picked up during the quarter, it failed to offset the declining momentum in private sector activity. Jain estimates GDP growth for the quarter to range between 6.3% and 6.5%.
Corporate and Policy Challenges
The corporate sector reported its weakest quarterly performance in over four years for the July-September period, signaling an economic slowdown that could impact future earnings and investment strategies.
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Despite these challenges, the RBI is expected to maintain its benchmark interest rate at 6.50% during its upcoming policy meeting, following a neutral stance adopted in its previous session.
Hope for Recovery in Second Half
Some government officials and economists remain optimistic about an economic rebound in the second half of the fiscal year. A boost in state spending following recent elections and an anticipated rise in rural demand, spurred by a better harvest, are expected to help reignite growth.
Axis Capital Economic Research expressed confidence, stating, “We expect recovery in growth in the second half.”
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The National Statistics Office is scheduled to release the official GDP data for the July-September quarter on Friday at 10:30 GMT.
