India’s economic narrative has long been one of optimism and resilience, often accompanied by ambitious goals of achieving global economic prominence. On the other hand, the recently published GDP numbers for the 3rd quarter—the 5.4% growth rate—have introduced a kind of plot twist to this narrative. Even though this pace is the lowest in 7 quarters and lower than the projected 6.5%, it casts some serious concerns about the viability of India’s GDP growth and its drivers.
What Caused the GDP Slowdown?
The September quarter’s disappointing numbers were influenced by multiple factors, with inflation playing a significant role. Retail inflation in India hit 14 months high, or 6.2% in October, due to an astonishing 42.2% surge in vegetable prices. In a country in which household spending constitutes an undue proportion of economic activity, these price rises have squeezed the purchasing power.
Specifically, the economic growth of India has been relatively low due to anemic urban consumption which has been the foundational basis of economic success for many years. Macquarie analysts also note that a reduction in household consumption, and corporate earnings, exacerbated the trend. Less demand for goods and services has generated a ripple effect industrywide, dampening overall economic activity.
Investment, Credit, and Export Woes
India’s economic engine is powered by stable investment and credit accumulation. Unfortunately, those same signs also set a frightening tone in the September quarter. Credit growth slowed to 11%, significantly below the 16% growth recorded a year earlier. According to Macquarie analysts, this “credit as a driver of GDP” slowdown has been one of the key factors behind the slowing down of GDP in India.
At the same time, slow capital expenditure and poorer export performance further fanned economic turbulence. Although India’s export industry has most commonly been applied as a shock absorber to internal shocks, poor performance in the recent quarter indicates that there is a more fundamental problem in the whole system of the economy.
Market Optimism: A Silver Lining
Despite the lackluster GDP numbers, market confidence has remained relatively intact. After the release of the GDP, the Nifty 50 index has yielded a feeble rise and risen by 13.7% over the course of the fiscal year. In particular, this resilience differs substantially from the 12% loss of the MSCI Asia ex-Japan index and therefore demonstrates investor confidence in the future Indian GDP growth.
Moreover, the Reserve Bank of India (RBI) is widely anticipated to keep interest rates unchanged in its next policy decision, a signal of a cautious stance to manage the economy. Although the bond market has reacted in an orderly way to the deceleration in the growth rate with lower interest yields, it is not turning into a panic situation for the investors, which is a positive augury for the future of the Indian economy.
What Lies Ahead for India’s GDP Growth?
In terms of the future, the growth pattern of India’s GDP growth is made up of challenges and opportunities. Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, forecasted a slowdown and a range of growth of 6% to 6.4% for 2025. These are slowing, but far from an economic crash.
State Street Global Advisors economist Krishna Bhimavarapu highlighted the need for policy action to address economic hollows/structural gaps in the economy. Policies to promote household consumption spending, promote investment activity and control inflation will be central in driving the rebound.
India’s medium-term economic plans have not been put on hold and it’s a consensus among analysts that 2027 will see India attain the third-largest economy in the world. But to avert a replay of the slowdown in the September quarter, the action will need to be decisive and at the core of the reforms in the structural areas.
Final Thoughts
September GDP figures are a caution bell for Indian policymakers and entrepreneurs. India’s GDP has not yet fallen victim to the competitive race between real and nominal growth rates at the international level, and to stay afloat, controlling inflation, raising credit and consumption, and repairing investment bottlenecks will be crucial.
Indian resilience in the market offers hope, but the road ahead will demand smart economic policymaking and targeted reform to maintain progress toward sustainable outcomes.
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