Weak Demand Expected To Damp India’s GDP Growth In September Quarter: Poll

While India’s economy grew by over 8 per cent in the fiscal year ending March, growth has significantly decelerated since then. Soaring food inflation has increased living costs

Private consumption, which accounts for about 60 per cent of India's GDP, has been hit hard

Source : Pexels

Indian economy is expected to have grown at its slowest pace in 18 months during the July-September quarter, as weak consumer spending outweighed a strong recovery in government expenditure, which has been a critical driver of growth in recent years, according to a Reuters poll on Tuesday.

While India’s economy grew by over 8 per cent in the fiscal year ending March, growth has significantly decelerated since then. Soaring food inflation has increased living costs, forcing households to scale back spending.

Private consumption, which accounts for about 60 per cent of India's GDP, has been hit hard, with sales of goods ranging from cars to biscuits plummeting. Passenger vehicle sales saw their first decline in 10 quarters, while two-wheeler sales also sharply slowed. The latest quarterly results from FMCG giant Hindustan Unilever further underline the strain on consumer demand.

Gross domestic product (GDP) in the world’s fastest-growing major economy was expected to have grown by 6.5 per cent year-on-year in the July-September period, slightly down from 6.7 per cent in the previous quarter, according to a poll of 54 economists conducted between November 18 and 25. Forecasts for the period ranged from 6.0 per cent to 7.1 per cent.

If confirmed, this would represent the slowest growth in six quarters and mark a third consecutive quarter of decelerating expansion. Economic activity, measured by gross value added (GVA), was projected to show a more modest 6.3 per cent increase.

"A host of high frequency indicators showed signs of slowing," said Dhiraj Nim, an economist at ANZ, as per the report.

"Manufacturing and mining growth likely slowed during the quarter. Passenger vehicle sales put up a poor show, reflecting weakness in private consumption. While government capex provided some lift, the uptick in overall public spending, excluding interest payments, was not as sharp as expected,” Nim added.

The Reserve Bank of India (RBI), citing a rebound in private consumption, has projected a 7.6 per cent growth for the current quarter ending in December. However, the majority of economists surveyed in the Reuters poll believe this forecast is overly optimistic.

"I suspect (the RBI) is underestimating the length and severity of the current cyclical slowdown in growth, which is taking place amid a continued tightening in both fiscal policy and monetary policy," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics. 

According to the report, economists have revised their growth forecasts, lowering the projection for this fiscal year to 6.8 per cent and for the next year to 6.6 per cent, down from 6.9 per cent and 6.7 per cent, respectively, in a survey conducted last month.

For India to generate sufficient employment opportunities for the millions of young people entering the workforce, the economy needs to consistently grow at rates above 8 per cent.