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 nearing a two-year low.
The reading follows quarter-on-quarter growth of 6.7% and represents the lowest reading since the final quarter of 2022. Economists polled by Reuters had forecast 6.5% growth for the period, while the Reserve Bank of India predicted expansion of 7% expected.
The country's statistics agency noted sluggish growth in the manufacturing and mining sectors.
The yield on the country's 10-year Treasury bond quickly fell from around 6.8% to 6.74% after the release.
The weak GDP reading could potentially impact the country's interest rate developments. The RBI's monetary policy committee is scheduled to meet from December 6-8. Market watchers had expected an 11th consecutive pause by the RBI, with the repo rate currently at 6.5%.
Harry Chambers, associate economist at Capital Economics, said Friday's reading showed weakness was “broad-based.” His company expects economic activity “to struggle in the coming quarters.”
“This argues for policy easing, but the recent rise in inflation means the RBI will not feel comfortable cutting interest rates for a few more months,” he said in a research note.
Speaking to CNBC's “Squawk Box Asia” ahead of the GDP release, Alicia Garcia Herrero, chief Asia Pacific economist at Natixis, predicted that India's economy will slow but not “collapse” in 2025.
She said that Natixis had a growth forecast of 6.4% for India in 2025 – without clarifying whether this referred to the fiscal or calendar year – but added that the estimate could be as low as 6%, which classified them as “not a bit” of a problem, but it’s not welcome.
Separately, the RBI forecast GDP growth to reach a higher 7.2% for the 2024 fiscal year ending March 2025.
Asked how India's economy will perform under President-elect Donald Trump's second presidency, Herrero said the country is “not really at the center of the value chain reorganization that China has done.”
“If I were the Trump administration, I would start [looking at tariffs for] Vietnam. This is a much more obvious case,” she noted.
She said China could manufacture products in India for Indian consumption instead of exporting products around the world – and so New Delhi could avoid being hit by tariffs.
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