India’s economic growth this year falls short of expectations

At first glance, the economic news coming out of India has seemed fairly dire. After a dull first quarter in India’s fiscal year (April-March), growth in the second quarter (July-September 2024) clearly undershot predictions. The Indian rupee also lost ground against the US dollar in recent months, and there was significant turnover of top staff at the Reserve Bank of India (RBI). India’s current economic situation is not alarming, however, even if its weaker-than-expected economic performance raises concerns.

The rupee’s approximately half-percent drop over the past months largely reflects dollar strength, a phenomenon that has affected the currencies of most emerging economies, not just India’s. Moreover, the changing of central bank governor was undramatic. The second term of RBI governor Shaktikanta Das ended on December 10 and he was succeeded by Sanjay Malhotra, who previously served in the Ministry of Finance.

The incoming governor assumes his new post with considerable challenges. Inflation has been knocking on the 6 % upper limit of the RBI inflation target range in recent months. GDP growth also slowed in July-September to 5.4 %, down from 6.7 % in April-June. Growth was particularly weak in the mining & quarrying sector (down by 0.1 %) and manufacturing (up 2.2 %). Construction (up 7.7 %) and services (up 7.1 %) grew relatively rapidly. On the demand side, private consumption grew by 6.6 % and fixed investment by 5.4 %.

Due to the weak economic performance, India’s central bank has reduced its GDP growth outlook for the current fiscal year by 0.6 percentage points to 6.6 %. At its December 6 meeting, the RBI’s monetary policy committee decided to keep its main steering rate unchanged at 6.25 %. It is still unclear whether India is merely experiencing a transient growth hiccup or more robust economic policy adjustments are needed to correct the situation.

India’s GDP growth has slowed in recent months

Note: Real growth measured in 2011-2012 fiscal year prices. India’s fiscal year runs from April to March.

Source: India’s Ministry of Statistics and Programme Implementation.