India's Economy Surprises with Weaker Growth

India's economy expanded significantly slower than expected from July to September, with a growth of only 5.4% compared to the previous year. This development was largely influenced by weak urban consumer demand due to rising food prices. Experts had originally predicted a GDP expansion of 6.5%. Aditi Nayar, an expert from ICRA, points to the recent rises in consumer price inflation and therefore expects no change in the monetary policy of the Reserve Bank of India (RBI) at the upcoming meeting. However, given the unexpectedly weak economic growth, a rate cut could be considered in February 2025, should inflation figures ease. Gaura Sen Gupta from IDFC First Bank notes that the slower growth also reflects declining corporate profits. Particularly, investments at both the private and state levels showed a slowdown. The weak private consumption is mainly due to slowed income growth in urban areas. There is a high probability that the RBI will cut interest rates in December. Vivek Kumar from QuantEco Research anticipates that some of these negative influences will decrease in the second half of the fiscal year 2025. This could be supported by positive effects of the Kharif season and increased government spending to meet budgetary targets. Nevertheless, international uncertainty under the Trump 2.0 administration poses a credible downside risk to the growth target of 7.0%. Upasna Bhardwaj from Kotak Mahindra Bank sees disappointing corporate figures as the cause for the low GDP numbers, with the manufacturing sector being most affected. Despite possible seasonal advantages, overall economic growth figures could be 100 basis points below the RBI's expectations. Sakshi Gupta from HDFC Bank attributes the weakened growth to poorer performance in the manufacturing, electricity, and mining sectors. Consumption is also weakening, especially in cities. This makes a rate cut in February more likely. Garima Kapoor from Institutional Equities at Elara Securities cites weak real income growth and negative effects from heavy rainfall as factors impairing demand. These significantly contributed to the limited growth in the second quarter of fiscal year 2025.