Sonali Ray, writer
Brief news
- India’s economy grew by only 5.4% in Q2, falling short of expectations and marking the lowest growth since late 2022, primarily due to weak mining and manufacturing sectors.
- The Reserve Bank of India may reconsider interest rates in light of this sluggish GDP growth, despite current inflation concerns.
- Economists predict ongoing economic challenges, with growth forecasts for 2025 ranging from 6% to 6.4%, indicating a slowdown but not a collapse.
Detailed news
During the second fiscal quarter that concluded in September, India’s economy experienced a mere 5.4% expansion, which was significantly lower than the estimates of economists and nearly two years below the previous low.
The print is the lowest reading since the final quarter of 2022 and follows a 6.7% increase from the previous quarter. The Reserve Bank of India anticipated a 7% expansion, while economists queried by Reuters had predicted a 6.5% growth rate for the period.
Sluggish growth in the mining and manufacturing sectors was observed by the nation’s statistics agency.
After the publication, the yield on the country’s 10-year sovereign bond rapidly decreased from approximately 6.8% to 6.74%.
The interest rate trajectory of the country could be influenced by the lackluster GDP reading, as the RBI’s Monetary Policy Committee is scheduled to convene from December 6-8. The RBI’s repo rate is presently at 6.5%, and market observers had anticipated an eleventh consecutive pause.
According to Harry Chambers, an assistant economist at Capital Economics, the Friday reading indicated that the weakness was “widespread.” His company anticipates that economic activity will “face significant challenges in the forthcoming quarters.”
According to his research note, “That strengthens the argument for policy loosening; however, the RBI will not feel at ease reducing interest rates for a few more months due to the recent increase in inflation.”
Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, predicted that India’s economy would experience a slowdown in 2025, but not a complete collapse, during an interview with CNBC’s “Squawk Box Asia” prior to the GDP release.
She stated that Natixis has a 2025 growth forecast of 6.4% for India, without specifying whether this pertains to the fiscal or calendar year. However, she also noted that the figure could fall as low as 6%, which she characterized as “not a significant issue, but it is not desirable.”
Separately, the Reserve Bank of India (RBI) anticipated that GDP growth for the fiscal year ending in March 2025 of the 2024 year would exceed 7.2%.
Herrero responded that India is “not really at the center of the reshuffling of the value chain that China has been conducting” when asked about the potential impact of President-elect Donald Trump’s second presidency on India’s economy.
“If I were the Trump administration, I would commence the process of examining tariffs for Vietnam.” She observed, “That is a much more apparent instance.”
She stated that China could manufacture products in India for domestic consumption rather than exporting them globally, which would prevent New Delhi from being subjected to tariffs.
Source : CNBC news
