(Bloomberg) — India’s economy fared below expectations in the three months through December as a gloomy global outlook and rising borrowing costs hurt manufacturing and consumption.
(Bloomberg) — India’s economy fared below expectations in the three months through December as a gloomy global outlook and rising borrowing costs hurt manufacturing and consumption.
Gross domestic product rose 4.4% from a year ago last quarter, according to data released by the Statistics Ministry Tuesday. That compares with the 4.7% median estimate in a Bloomberg survey and 6.3% gain in July to September. For the fiscal year ending March 31, the ministry maintained its estimate for a 7% growth as GDP for the prior year expanded a revised 9.1%.
Manufacturing contracted for a second straight quarter, falling 1.1% in October-December as growth in private consumption slowed to 2.1% compared with 8.8% gain in July-September. While services including finance, real estate, transportation and communication showed year-on-year gains, the pace slowed from the prior quarter.
“India’s economy came off the boil at the end of last year as higher interest rates weighed on household consumption and investment,” said Shilan Shah, an economist with Capital Economics (Asia) Pte Ltd.
Waning consumption, which accounts for about 60% of GDP, risks hurting growth in Asia’s third-largest economy, as borrowing costs rise. The Reserve Bank of India has increased interest rates by 250 basis points since May to tame inflation and signaled it isn’t ready to pause just yet, amid growing dissent within the rate-setting panel.
“My fear is that all sources of demand in the economy are contracting at the same time,” Jayanth Rama Varma, an external member of RBI’s Monetary Policy Committee, said in a recent interview. As exports weaken on waning global demand and the government forges ahead with fiscal consolidation, Varma said higher rates will dent household budgets.
What Bloomberg Economics Says…
- Looking ahead, available data for the month of January has started to show further weakness in the growth momentum. A slump in imports, a drop in industrial growth, weaker PMI readings and a construction slowdown — all suggest that a global downturn and rising interest rates are starting to have a more dampening impact on India’s economy.
— Abhishek Gupta, senior India economist
For the full note, click here
There might be more pain in store as inflation flares up, interest rates rise further and consumer activity in India’s key export market — the US — loses steam.
While India’s growth will likely moderate to 6.1% next year, according to the International Monetary Fund, Asia’s third-largest economy is still pulling off a relatively strong performance in a tough environment where even China indicators are pointing to an uneven recovery despite its reopening.
The government’s Chief Economic Advisor V. Anantha Nageswaran said that manufacturing slowed because of rising input costs, but PMI indicators suggest the sector is “in good health.” The 7% growth estimate for the year ending March is realistic because the economy needed only to expand by about 4%-4.1% in the current quarter to hit it, he said.
The GDP data was broadly in line with RBI’s own estimates, and “will not shift the growth assumptions materially,” said Rahul Bajoria, an economist with Barclays Plc. “We continue to see robust momentum in India’s domestic activity,” which should keep the central bank hawkish in its rate actions,” Bajoria said.
–With assistance from Adrija Chatterjee, Saikat Das and Karthikeyan Sundaram.
(Updates throughout with chart, economists’ voices)
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