India’s economy has slowed to the slowest rate in nearly two years. This raises concerns for India’s outlook on the overall economic situation of the country’s fiscal year that ends March 2025.
On Friday, the Statistics Ministry reported that Gross Domestic Product (GDP), which is the gross domestic product of the country, grew at a rate of 5.4% for the quarter ending September 2024. This was the lowest growth since the fourth-quarter 2022.
The Reserve Bank of India (RBI), which had projected a growth rate of 7% for this period, has significantly lower figures.
Goldman Sachs and other investment banks have revised their forecasts for GDP growth downwards. Some predict growth of as little as 6.4% in the entire fiscal year.
Reserve Bank of India under pressure
RBI is under increased pressure to reduce interest rates due to the disappointing GDP numbers.
According to the central bank, this year’s growth is expected to be 7.2%.
The possibility of a cut in the rate at the next monetary policy meeting on the 6th of December has been a hot topic for discussion.
Sakshi Gupta is an economist with HDFC Bank Ltd. She told Bloomberg that, while they expect the RBI will keep its policy rate the same at their meeting next Monday, there’s a greater chance of the rate being cut in February.
Following the announcement of the GDP, the yield on India’s 10-year bonds dropped by 5 basis points (to 6.76%), reflecting the reaction of the market to the lower-than-expected economic growth.
Factors contributing to economic recession
This decline is due to a weaker performance by key sectors.
The mining industry even experienced a contraction.
This slowdown is due to a number of economic factors, such as a decline in profits for companies, falling wages and inflationary pressures.
The RBI, despite these challenges, has kept its policy rate the same for almost two years. Governor Shaktikanta das recently described a reduction in the rate at this time as “very dangerous” due to the persistent inflation worries.
Slowing economic growth has political and social consequences
Economic slowdown impacts go beyond financial issues.
The high borrowing costs are a hindrance to economic growth, as pointed out by several prominent ministers of Prime Minister Narendra modi’s cabinet, such as the Finance minister.
India is also unable to leverage the demographic dividend fully due to a weakening growth.
The rise in unemployment, especially among youth, was a key political issue during the elections this year, and contributed to the less than stellar performance of the ruling party.
Is India missing out on its demographic dividend in this post? As updates occur, this post may change.
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