5.4%: Q2 GDP growth slowest in 7 quarters

India's economy expanded at a lower-than-expected 5.4% in the three months ended September, with sluggish growth in manufacturing and private consumption, a reflection of weak demand because of high borrowing costs, inflation and weak real wage growth.

- Roshan Kishore

The number is much lower than forecasts—Reuters and Bloomberg polls had estimated 6.5% and the Reserve Bank of India in October, 7%—but higher inflation (retail inflation was 6.21% in October) may mean the central bank's monetary policy committee (MPC) has a tough job when it meets next week. The lower growth does warrant a cut in the interest rate, as demanded by two senior Union ministers in recent weeks, but the high inflation remains a concern.

The headline GDP growth number is 1.3 percentage points lower than the June quarter print and the lowest in seven quarters, since the 4.3% reading in the quarter ending December 2022. The latest GDP growth print marks the third consecutive fall in quarterly growth numbers.

What explains the sharp deceleration in GDP? From the consumption side, both private final consumption expenditure (PFCE), a measure of consumption and gross fixed capital formation (GFCF), a measure of investment, have seen a fall in growth rate between the June and September quarters, the respective numbers being 7.4% and 6% for PFCE and 7.5% and 5.4% for GFCF. Exports have also lost momentum with the September quarter growth falling to 2.8% from 8.7% in the June quarter. The headwinds from these three fronts more than compensated for the tailwinds from an increase in growth of government final consumption expenditure (GFCE) and a fall in imports.