India's economic growth sputters to 4.5%, weakest since 2013

The weak growth outlook and interest-rate cuts are weighing on the rupee, the worst-performing currency in emerging Asia this quarter.
The weak growth outlook and interest-rate cuts are weighing on the rupee, the worst-performing currency in emerging Asia this quarter.PHOTO: AFP

NEW DELHI (BLOOMBERG) - India's economy grew at its weakest pace in more than six years last quarter, a blow to Prime Minister Narendra Modi as he steps up action to stem the fallout.

Gross domestic product rose 4.5 per cent in the September quarter from a year ago, down from 5 per cent in the previous quarter. It matched a median estimate in a Bloomberg survey of economists.

Core infrastructure industries' output declined 5.8 per cent in October, the biggest contraction since at least 2005, data released separately showed on Friday (Nov 29).

"Today's weak print was well telegraphed, and while the Reserve Bank of India (RBI) did not project this kind of weakness, we do not think their view on growth trajectory will change materially," said Mr Rahul Bajoria, senior economist with Barclays Bank Plc in Mumbai. "We expect RBI to keep cutting rates."

The slowdown in Asia's third-largest economy took a turn for the worse this year as consumers curbed spending, businesses held back on investments and export demand slumped. Having left much of the stimulus burden to the RBI early this year, Mr Modi has recently taken bolder steps to reverse the decline, though the policy room for additional stimulus is narrowing.

"Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy," Dr Taimur Baig, chief economist at DBS Group Holdings Ltd in Singapore, said before the GDP data.

"Production and sales are under pressure, and public spending is running out of room due to poor tax collection."

In recent months, the government has slashed corporate taxes, set up a special real estate fund, merged banks and announced the biggest privatisation drive in more than a decade. The central bank has already cut interest rates by 135 basis points this year to the lowest since 2009, with economists predicting more easing to come next week.

The weak growth outlook and interest-rate cuts are weighing on the rupee, the worst-performing currency in emerging Asia this quarter.

Manufacturing, which is a focus area for Mr Modi's administration as India tries to woo investors, declined 1 per cent in July-September from a year ago, while farm output grew 2.1 per cent.

 
 
 

The government expects growth to recover as consumption and investments pick up. The economy has bottomed out, Economic Affairs Secretary Atanu Chakraborty told reporters in New Delhi.

India was the world's fastest-growing economy until last year, posting quarterly growth rates of as high of 9.4 per cent in 2016. A crisis among shadow banks - a key source of funding for small businesses and consumers - weak rural spending and a global slowdown have since conspired to bring down growth steadily.

"The onus is on the government to do the heavy lifting," Dr Devendra Pant, chief economist of India Ratings and Research, a local unit of Fitch Ratings Ltd, said before the data were released. He expects the government will miss this year's fiscal deficit target of 3.3 per cent of GDP as it boosts spending while tax revenue falters.