India’s first-quarter GDP growth likely to fall on weak urban spending: Reuters poll Reuters

Written by Manoj Kumar

New Delhi (Reuters) – India’s economy is expected to contract in the July-September quarter, growing at its slowest pace in 18 months, weighed down by weak urban consumption following higher food prices despite increased government spending.

A Reuters poll of economists showed GDP growth at 6.5% year-on-year in the three months to September, below the central bank’s estimate of 7% and 6.7% in the previous quarter.

Economic activity, as measured by gross value added (GVA), is forecast to show a modest expansion of 6.3% compared to 6.8% in the previous quarter.

If projections hold, it will mark the third consecutive quarter of slow growth, although India will remain the world’s fastest growing economy.

Reserve Bank of India (NS:) (RBI) kept its GDP growth forecast for the fiscal year at 7.2%, down from 8.2% in the previous fiscal year, while several independent economists cut their forecasts.

The Office for National Statistics is expected to announce GDP figures for the July-September quarter on Friday at 1030 GMT.

Economists say private consumption, which accounts for about 60% of India’s gross domestic product (GDP), has been hit by a slowdown in urban spending due to food inflation, borrowing costs and slower real wage growth, despite signs of recovery in rural demand. .

Retail food prices, which make up about half of the consumption basket, rose 10.87% year-on-year in October, eroding household purchasing power.

Toshi Jain, an economist at JP Morgan, said that in recent months there has been a decline in leading indicators such as industrial output, fuel consumption and bank debt growth, as well as weak corporate earnings, affecting economic growth.

“(Although) government spending picked up again in the July-September quarter that did not prevent the data from falling, suggesting that private sector momentum has softened,” he said in a statement earlier this week.

Jain expects GDP growth of 6.3% to 6.5% in the September quarter.

India’s top companies posted their worst quarterly performance in four years in the July-September period, raising concerns that the deepening recession has begun to affect corporate earnings and investment plans.

However, the RBI is expected to keep its policy interest rate unchanged next week amid concerns over rising retail inflation, according to economists polled by Reuters.

The RBI’s Monetary Policy Committee, left the benchmark repo rate unchanged at 6.50% last month, while adjusting its policy stance to “neutral”.

Government officials and other economists expect the economy to pick up again in the second half of the fiscal year, helped by the accumulation of government spending after the recent election, and strong rural demand after a better harvest.

“We expect a recovery in growth in the second half,” Axis Capital (NYSE:) Economic research notes.