India’s growth slowed in December quarter on weakness in manufacturing

India’s economic growth slowed further in the December quarter as pent up demand eased and weakness in the manufacturing sector continued.

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Asia’s third largest economy recorded year-on-year growth of 4.4 percent in October-December, down from 6.3 percent in July-September, data released by the government on Tuesday showed.

October-December growth was below a Reuters forecast of 4.6 percent.

India’s manufacturing sector shrank by 1.1 percent year-on-year in the quarter, a second straight contraction reflecting weakness in consumer demand and exports.

External demand was weak as central banks globally continued monetary tightening to tame inflation.

“The major disappointment is negative growth in manufacturing,” said Madan Sabnavis, economist at state-run Bank of Baroda. He said 2022/23 growth will be at 6.8 percent against a government estimate of 7 percent.

The Reserve Bank of India (RBI), has raised its benchmark repo rate by 250 basis points since May last year and economists expect a further rate hike of 25 basis points to 6.75 percent in April before it pauses until year end.

The sharp fall in the year-on-year growth rate is also partly due to a fading of pandemic-induced base effects and revision to last year’s growth, economists said.

The Indian government revised 2021/22 annual growth to 9.1 percent from 8.7 percent.

India’s private consumer spending, contributing around 60 percent of GDP, rose just 2.1 percent year-on-year in December quarter, compared to downwardly revised 8.8 percent increase in the previous quarter, while capital investment rose 8.3 percent year-on-year compared to revised 9.7 percent growth in the same period.

Government spending declined 0.8 percent year-on-year in the December quarter compared to revised 4.1 percent contraction in the previous quarter.

“There is a significant deceleration in consumption growth – both for the private and government sectors,” said Rupa Rege Nitsure, economist at L&T Financial Holdings.

“A possibility of additional interest rate hikes coupled with a slowdown in overall demand pose a further downside risk to manufacturing activity.”

In real terms, India’s GDP is estimated at 159.71 trillion rupees ($1.93 trillion) in the current financial year ending in March, about 9.6 percent higher compared to pre-COVID level of 145.69 trillion rupees ($1.76 trillion) in 2019/20, data showed.

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