During the three months ending in September, the Indian economy experienced its slowest growth in seven quarters, according to preliminary data from the Ministry of Statistics reported on Friday. This deceleration was primarily attributed to a robust services sector being counterbalanced by a slowdown in the manufacturing and mining sectors.
The gross domestic product (GDP) increased by 5.4 percent year-on-year in the September quarter of the fiscal year 2024-25, following a 6.7 percent rise in the previous quarter. Economists had projected a 6.5 percent growth rate. This marks the third consecutive quarter of slowing growth, with the current rate being the weakest since the December quarter of the fiscal year 2022-23, when the economy grew by 4.3 percent.
In the same quarter of 2023-24, India's economic growth was 8.1 percent. Despite recent slowing, India continues to be the fastest-growing emerging economy, surpassing China’s 4.6 percent growth in the same period. Manufacturing saw a growth of 2.2 percent, a significant drop from the double-digit growth observed in the previous year. The mining and quarrying sector contracted by 0.1 percent, in stark contrast to the 11 percent expansion seen in the same quarter the previous year.
The tertiary sector, which includes industries such as hospitality, travel, communication, and broadcasting, grew by 7.1 percent compared to 6.0 percent in the same quarter last year. In the financial services sector, growth strengthened to 6.7 percent from 6.2 percent year-on-year.
Construction grew by 7.7 percent, driven by steady domestic consumption of finished steel, though this was down from a 13.6 percent increase the previous year. The agricultural sector saw an improvement, growing at 3.5 percent versus 1.7 percent the year prior. However, growth in utilities sharply slowed to 3.3 percent from 10.5 percent.
Private consumption, a vital component of India's GDP, rose by 6.0 percent in the September quarter, compared to just 2.6 percent in the previous year. Meanwhile, state expenditure rebounded by 4.4 percent after experiencing negative or weak growth over the last three quarters.
Economic growth for the April to September period, marking the first half of the financial year 2024-25, was recorded at 6.0 percent, a decrease from the 8.1 percent seen in the prior six months. Over the same period last year, growth was 8.2 percent.
Capital Economics forecasts that India’s growth will remain tepid in the upcoming quarters, as household spending moderates and investment growth slows within the context of persistently high interest rates.
Harry Chambers, an economist at Capital Economics, stated, "We believe that the Q3 data is unlikely to persuade the Reserve Bank of India to lower interest rates in its December meeting given the recent surge in headline inflation. However, if our prediction that inflation has peaked and will gradually decrease towards the 4 percent target holds true, it could pave the way for policy easing to start in April."
