India's economy experienced its slowest growth in five quarters during the three months leading up to June, hindered by a slowdown in agricultural output and a decline in government spending, which offset gains in manufacturing and private consumption.
According to preliminary figures from the country's statistical office released on Friday, Gross Domestic Product (GDP) expanded by 6.7 percent year-over-year, following a 7.8 percent increase in the March quarter. Economists had predicted a 6.9 percent growth rate. This latest growth rate marks the slowest since the December quarter of 2022, when the economy grew by 6.2 percent, and it falls short of the Reserve Bank of India's (RBI) forecast of 7.1 percent.
Comparatively, in the June quarter of 2023, the Indian economy grew by 8.2 percent.
Despite the deceleration, India's growth rate remained the highest among the fastest-growing major economies, surpassing China's 4.7 percent growth for the June quarter. Agricultural sector growth decelerated to 2.7 percent from 4.2 percent during the same period last year.
The tertiary sector, encompassing services industries like hospitality, communication, transport, and financial services, grew by 7.2 percent, which is slower than the 10.7 percent growth recorded a year ago.
Manufacturing growth improved to 7.0 percent from 5.0 percent. Meanwhile, the utilities sector saw a significant surge, growing by 10.4 percent compared to 3.2 percent previously. The construction sector expanded by 10.5 percent, improving on the 8.6 percent gain last year. Private consumption grew by 7.4 percent, and gross fixed capital formation increased by 7.5 percent.
However, government spending contracted by 0.2 percent, primarily due to restrictions ahead of the parliamentary elections.
"Looking ahead, we expect the economy to cool a bit further over the coming quarters as household consumption moderates and investment growth eases in an environment of still-high interest rates," said Capital Economics economist Ankita Amajuri. "But the economy is not going to crater."
According to Amajuri, the economy is still on track to grow by 6.5 percent this year and by 6.0 percent in 2025.
Additionally, Amajuri noted that the June quarter data is unlikely to persuade the RBI to reduce interest rates at its October meeting. However, policymakers may find justification for doing so by December, provided there is sufficient evidence that headline inflation is sustainably back at the 4 percent target.
The RBI has forecast a 7.2 percent growth rate and 4.5 percent inflation for the financial year 2024-25.
