India’s Economic Growth Likely Fell To 4.6% In October-December Quarter

Since last May, the Reserve Bank of India (RBI), has raised interest rates by a cumulative 250 basis points since last May to tackle inflation, and is likely to do so again in April.

New Delhi: According to a Reuters poll of economists, India’s economic growth is likely to be slowed down further in slowed further in the October-December quarter amid weakening demand and is set to lose more momentum as a series of interest rate hikes weigh on activity. According to the median forecast of 42 economists in the February 10-24 Reuters survey, the Gross Domestic Product (GDP) growth in the last quarter slipped to an annual 4.6 per cent.

Indian economy had expanded to 13.5 per cent in the April-June quarter, contributed mostly by the post-pandemic economic boom. It further contracted to 6.3 per cent in the July-September quarter.

The Reuters monthly survey also showed that growth in India was expected to slow further to 4.4 per cent in the current quarter, and across 2023/24 would average 6 per cent, lower than the official government estimate published on 31 January 2023.

The forecasts for October-December GDP growth data, due on 28 February 2023, ranged widely from 4 per cent to 5.8 per cent, as per the Reuters survey. However, all survey respondents predicted growth to be lower than the previous quarter and three-quarters of respondents forecast growth below 5.0 per cent.

“There are base effects that are normalizing and pulling down the annual numbers. The support from agriculture might be lower and also manufacturing could be a drag,” Sakshi Gupta, principal economist at HDFC Bank told Reuters. She added that on the demand side, exports and consumer demand were likely to have contributed to the slowdown, while investments held steady.

“Inflation is continuing to remain very high and interest rates are increasing. Pent-up demand has also started moderating,” said Gupta.

Since last May, the Reserve Bank of India (RBI), has raised interest rates by a cumulative 250 basis points since last May to tackle inflation, and is likely to do so again in April. Those rate hike moves are expected to have a lagged effect on consumption and economic growth.

External demand is also likely to moderate as major central banks around the world continue raising rates.

“We expect growth for the domestic economy to hold up, but a greater-than-anticipated spillover impact from weak global conditions…may have more pronounced implications for domestic growth in the near term,” Upasana Chachra, chief India economist at Morgan Stanley told Reuters.