Construction workers in Mumbai, India on June 5, 2024.
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India's economy grew just 5.4% in the second fiscal quarter ended September, well below economists' estimates and near a two-year low.
The reading follows growth of 6.7% during the previous quarter and is the lowest reading since the last quarter of 2022. Economists polled by Reuters had expected growth of 6.5% for the period, while the Reserve Bank of India expected an expansion of 7%.
The country's statistics agency noted slow growth in the manufacturing and mining sectors.
The yield on the country's 10-year sovereign bonds quickly fell to 6.74% after the issuance, from about 6.8%.
The weak GDP reading is likely to impact the country's interest rate path, as the Reserve Bank of India's Monetary Policy Committee is scheduled to meet from December 6-8. Market observers had expected the Reserve Bank of India to stop for the eleventh time in a row, as the repo rate currently stands at 6.5%.
Friday's reading showed the weakness was “broad-based,” said Harry Chambers, associate economist at Capital Economics. His company expects economic activity to face “difficulties during the coming quarters.”
“This strengthens the case for easing monetary policy, but the recent jump in inflation means the RBI will not feel comfortable cutting interest rates for a few more months yet,” he said in a research note.
Speaking to CNBC's “Squawk Box Asia” ahead of the GDP release, Alicia Garcia Herrero, Asia Pacific chief economist at Natixis, predicted the Indian economy would slow but not “collapse” in 2025.
She said Natixis had a growth forecast of 6.4% in India for 2025 – without clarifying whether this referred to the financial or calendar year – but added that the print could also reach 6%, which she described as “not a little”. “It's a problem, but it's not welcome.”
Separately, the Reserve Bank of India has forecast that GDP growth for the 2024 financial year ending March 2025 will reach a higher rate of 7.2%.
Asked about the performance of the Indian economy under President-elect Donald Trump's second presidency, Herrero said the country is “not actually at the center of the reshaping of the value chain that is being run by China.”
She noted, “If I were the Trump administration, I would start (looking at tariffs) on Vietnam. This is a much clearer case.”
She said China could manufacture products in India for Indian consumption instead of exporting products globally – and as such, New Delhi could avoid being hit with tariffs.
