The Indian government has revised its economic growth outlook for the current fiscal year, projecting the slowest expansion since the pandemic, pegging GDP growth at 6.4% for the year ending in March, a significant drop from last year’s 8.2%, as reported by the Statistics Ministry on Tuesday.
While this aligns with Bloomberg’s median economist forecast, it marginally misses the government’s previous 6.5% projection.
This revised estimate underscores concerns that India’s rapid economic expansion is losing momentum, presenting challenges for Prime Minister Narendra Modi’s vision of elevating the nation to developed economy status and generating jobs for its burgeoning young workforce.
In this fiscal year, consumer spending has diminished as wages have declined and inflation has risen, impacting the profits of several major retailers. Additionally, government spending has fallen short of budgeted targets, partially due to the prolonged election period, which has further constrained economic growth.
Meanwhile, there are also some optimistic signs, with private consumption projected to rise 7.3% this year compared to 4% last year. Government spending is expected to advance by 4.1%, up from 2.5% seen in the previous financial year.
Radhika Piplani of DAM Capital Advisors Ltd. notes that such projections are buoyed by the expectation of sustained rural spending following a good monsoon and an anticipated increase in public expenditure.
On a financial note, the yield on India’s 10-year government bond edged up by one basis point to 6.76%, while the rupee weakened slightly by 0.1% on Wednesday.
However, some analysts, like those at Goldman Sachs and Nomura, predict an even lower growth rate of 6%, citing geopolitical tensions and proposed trade tariffs by the U.S. President-elect Donald Trump as potential drags on global economic activity.
Nomura’s Sonal Varma and Aurodeep Nandi suggest that growth figures could be revised down further, pointing to a lackluster performance across consumption, industrial output, and investment during the October-November festivals, with recent data showing no significant recovery yet.
In light of these developments, pressure is mounting on the new central bank governor, Sanjay Malhotra, to consider interest rate cuts to shift away from his predecessor Shaktikanta Das’ more restrictive monetary policy. The Reserve Bank of India has kept rates steady for nearly two years despite increasing calls for easing.
