India’s GDP Growth Slows To Two-Year Low

Two weeks ago, when looking at the recent sharp drop in Indian stocks and the concurrent slide in earnings expectations, we asked whether the Indian stock bubble – one of the most resilient of the past decade – had finally burst.

Today we got another confirmation that the answer appears to be yes, when we learned that India’s economy grew at its slowest pace in almost two years, dampening the outlook for the full year and putting pressure on the central bank to cut interest rates.

GDP grew 5.4% in the three months to September from a year earlier, the Statistics Ministry said in a statement on Friday. That was the worst reading since the fourth quarter of 2022 and lower than the central bank’s projection of 7% for the period. It is also well below the roughly 10% growth pace observed in the pre-covid era.

The data will prompt economists to further downgrade their GDP growth forecasts for the year through March 2025. Investment banks like Goldman Sachs Group Inc. are already predicting growth as low as 6.4%.

The figures will also put pressure on the Reserve Bank of India, which has been predicting growth of 7.2% for the full year, to cut interest rates. The next monetary policy decision is scheduled for Dec. 6. The yield on India’s 10-year bond fell 5 basis points to 6.76% after the GDP release. The rupee was steady, having closed before the data.

“While we expect the RBI to keep the policy rate unchanged at its meeting next week, the possibility of a move in the February policy for a rate cut has increased,” said Sakshi Gupta, an economist at HDFC Bank Ltd.

The slump in last quarter’s growth was largely due to weaker manufacturing and electricity and gas production, while mining contracted.

Slumping company profits, falling wages and inflation have hurt the economy’s breakneck speed in recent months. The central bank has kept rates unchanged for almost two years now, with Governor Shaktikanta Das recently reiterating that a rate cut at this stage would be “very risky” given inflation risks.

Prominent ministers in Prime Minister Narendra Modi’s government, including the finance minister, have recently stated that high borrowing costs are hurting the economy. Weak growth will make it difficult for India to cash in on its demographic dividend. Joblessness, especially among young people, emerged as a key concern for voters in India’s election this year, contributing to Modi’s worse-than-expected showing at the polls.

Despite the rapid slowdown in growth, India’s economy continues to grow notably faster than that of India, which is officially expected to grow by 5% but unofficially is stagnant at best if not contracting.