India’s annual economic growth slowed to 4.5% in the July-September quarter, its weakest pace since 2013, making an interest rate cut more likely when the central bank meets next week.
The gross domestic product data released on Friday showed consumer demand, private investment and exports all struggling, resulting in a year-on-year growth figure that was below the 4.7% forecast in a Reuters poll of economists.
Growth was 7% in the same quarter of 2018, and 5% in the previous quarter.
India needs to grow at around 8% to create enough jobs for the millions of young people joining the labour force each year, yet many economists see the current slowdown continuing for another year or two, underlining the case for urgent reforms.
Prime Minister Narendra Modi’s government, given a second term by voters in May, has taken several steps, including cutting corporate tax in September and speeding up privatisation of state-run firms to boost investments and bolster growth.
Economists said the drop in growth could prompt the Reserve Bank of India to cut its repo rate by 25 basis points to 4.90% at its meeting from Dec. 3-5.
“A rate cut is definitely on the cards,” said Anagha Deodhar, an economist at ICICI Securities, Mumbai, adding that markets are skeptical about how effective monetary policy can be in boosting growth in the current scenario.
If the RBI does cut rates, it would the sixth consecutive policy meeting that it has done so. The repo rate has fallen 135 basis points so far this year but banks, saddled with about $140 billion in stressed assets, have not cut their lending rates much.
The government is nudging the central bank to set up a fund to buy out stressed assets of the country’s top 25 shadow lenders and revive the financial sector, a government source told reporters on Thursday.
Firms show little appetite to invest due to sluggish domestic and global demand.
