NEW DELHI — India’s economy slowed significantly in the third quarter, weighed down by sluggish manufacturing and weakening consumer demand, adding pressure on the central bank to consider cutting interest rates.
Gross domestic product grew by 5.4% year-on-year in the July-to-September period, government data showed on Friday, marking the slowest pace in seven quarters and falling short of analysts’ expectations of 6.5% in a Reuters poll. Growth had been 6.7% in the previous quarter.
A more stable measure, gross value added (GVA), also reflected the slowdown, rising by 5.6%, down from 6.8% in the prior quarter.
“This is a disappointing number given the challenging global environment,” said V. Anantha Nageswaran, India’s chief economic adviser, during a news briefing.
Manufacturing and consumption drag growth
The slowdown was pronounced in manufacturing, where year-on-year growth dropped to 2.2%, a steep decline from 7% in the previous quarter. Private consumer spending, which accounts for nearly 60% of India’s GDP, rose 6.0% year-on-year, slowing from 7.4% in the previous quarter, as inflation around 6% eroded purchasing power, particularly in urban areas.
Despite the challenges, government spending provided some relief, increasing by 4.4% in the quarter compared to a 0.2% contraction in the previous period. Agricultural output also grew 3.5%, bolstered by a favorable monsoon, up from 2% in the prior quarter.
Calls for central bank action
Economists have pointed to inflation and higher borrowing costs as major factors squeezing demand across sectors, from consumer goods to automobiles. The slowdown is expected to heighten pressure on the Reserve Bank of India to cut interest rates to stimulate economic activity.
“The data confirms weakening momentum, and the central bank may have to act sooner rather than later,” said a senior economist at a Mumbai-based think tank.
Despite the weaker-than-expected performance, Mr. Nageswaran maintained that growth prospects remained resilient, with rural demand expected to provide a buffer against broader headwinds.
As India navigates a challenging global environment, policymakers will likely face increased scrutiny over measures to safeguard the country’s economic momentum in the months ahead.
