India’s economic growth slowed more than expected in the third quarter, driven by weaker performances in manufacturing and consumption, likely increasing pressure on the central bank to consider cutting interest rates.
GDP grew by 5.4% in the July-September period year-on-year, marking the slowest growth in seven quarters and below the 6.5% forecast in a Reuters poll. The previous quarter witnessed a growth of 6.7%.
Meanwhile, gross value added, a more stable measure of economic activity, rose 5.6%, down from a 6.8% increase in the previous quarter.
Manufacturing growth fell sharply to 2.2% from 7% in the previous quarter. The mining sector also contributed to the slowdown, as the economy saw a bump in its post-pandemic recovery.
The slowdown is also fueled by inflation, which has reached around 6%, reducing demand for goods, including soap, shampoo and cars, especially in urban areas. Private consumption increased by 6.0% compared to the previous year, down from 7.4% in the previous quarter.
Despite the slowdown, government spending rose 4.4% year-on-year in the third quarter, up from a 0.2% contraction in the previous quarter. Agricultural production, supported by a good monsoon, performed better, rising by 3.5% compared to 2% in the previous quarter.
Corporate earnings also indicated a slowdown, with more than 50% of the 44 companies in the Nifty 50 index missing analyst estimates or reporting results in line with expectations. Companies like Maruti Suzuki, Nestle India and Hindustan Unilever reported a slowdown in urban consumption in the September quarter.
Additionally, inflation-adjusted wage growth for Indian listed companies remained below 2% for all three quarters of 2024, well below the 10-year average of 4.4%, according to Citi data. As a result, India saw unprecedented foreign inflows of about $12 billion from stock markets in October.
The GDP data led to a decline in bond yields and overnight index swap rates, indicating a greater likelihood of a rate cut by the Reserve Bank of India (RBI). Some economists have suggested that the Reserve Bank of India may consider a rate cut in December, while others expect a cut in February.
The Indian Finance and Commerce Ministers have called for lower interest rates to boost investment and build capacity in industries. However, Nageswaran declined to comment directly on the RBI’s next steps, stating that the central bank is aware of the data and knows how to act.
The Reserve Bank of India’s Monetary Policy Committee (MPC) left its benchmark repo rate unchanged at 6.50% in October due to persistent inflation but adopted a ‘neutral’ stance. The Reserve Bank of India is scheduled to announce its next policy decision on December 6.
In addition to economic concerns, India’s foreign exchange reserves also declined for the eighth consecutive week.
Data from the Reserve Bank of India (RBI) on Friday showed that as of November 22, reserves were at a five-month low of $656.58 billion. Reserves fell by $1.3 billion during the reporting week and have fallen by $47 billion cumulatively over the past seven weeks.