India's growth slowed in December quarter on weakness in manufacturing

Oct-Dec GDP at 4.4% as against forecast of 4.6%; manufacturing sector down 1.1%

A woman at a silk factory in Agartala, in the eastern Indian state of Tripura. - PTI

By Reuters

Published: Tue 28 Feb 2023, 6:02 PM

Last updated: Tue 28 Feb 2023, 6:49 PM

India’s economic growth slowed further in the December quarter as pent up demand eased and weakness in the manufacturing sector continued.

Asia’s third largest economy recorded year-on-year growth of 4.4 per cent in October-December, down from 6.3 per cent in July-September, data released by the government on Tuesday showed.

October-December growth was below a Reuters forecast of 4.6 per cent.

India’s manufacturing sector shrank by 1.1 per cent year-on-year in the quarter, a second straight contraction reflecting weakness in consumer demand and exports. External demand was weak as central banks globally continued monetary tightening to tame inflation.

“The major disappointment is negative growth in manufacturing,” said Madan Sabnavis, economist at state-run Bank of Baroda. He said 2022-23 growth will be at 6.8 per cent against a government estimate of 7 per cent.

The Reserve Bank of India (RBI) has raised its benchmark repo rate by 250 basis points since May last year and economists expect a further rate hike of 25 basis points to 6.75 per cent in April before it pauses until year-end.

The sharp fall in the year-on-year growth rate is also partly due to a fading of pandemic-induced base effects and revision to last year’s growth, economists said. The Indian government revised 2021-22 annual growth to 9.1 per cent from 8.7 per cent.

India’s private consumer spending, contributing around 60 per cent of GDP, rose just 2.1 per cent year-on-year in December quarter, compared to downwardly revised 8.8 per cent increase in the previous quarter, while capital investment rose 8.3 per cent year-on-year compared to revised 9.7 per cent growth in the same period.

Government spending declined 0.8 per cent year-on-year in the December quarter compared to revised 4.1 per cent contraction in the previous quarter.

“There is a significant deceleration in consumption growth - both for the private and government sectors,” said Rupa Rege Nitsure, economist at L&T Financial Holdings. “A possibility of additional interest rate hikes coupled with a slowdown in overall demand pose a further downside risk to manufacturing activity.”

In real terms, India’s GDP is estimated at Rs159.71 trillion ($1.93 trillion) in the current financial year ending in March, about 9.6 per cent higher compared to pre-Covid level of Rs145.69 trillion ($1.76 trillion) in 2019-20, data showed.