India’s Economic Growth Slumps to 5.4%: What Happens Next?

Economists have lowered their growth predictions for India after new data showed that the country’s economy is growing more slowly than before. In the last quarter, from July to September, India’s economy grew at only 5.4%. This is the lowest rate in over a year and much less than what experts and the Reserve Bank of India expected, which was 7%.

Experts from companies like Goldman Sachs and Barclays have changed their forecasts. Goldman Sachs’ economists have reduced their growth estimate for this financial year to 6%, down from 6.4%. Other analysts have also lowered their expectations. They say the slowdown is because manufacturing activity is weaker than planned. Madhavi Arora, an economist from Emkay Global Financial Services, has also revised her prediction to 6% from 6.5%. She believes urban spending will remain low due to weak incomes, while any increase in rural spending is just temporary.

Falling wages, lower company profits, and high prices have made it hard for the economy to pick up in recent months. Because of this, several government officials are asking for lower interest rates. However, Reserve Bank of India Governor Shaktikanta Das is hesitant to do so, saying it could be risky with inflation still high. The next meeting about interest rates is coming up on December 6.

Experts believe the disappointing GDP numbers may push the government to accelerate its spending on projects. However, they don’t think the slowdown in manufacturing will get better quickly. Some believe there is now a better chance of rate cuts starting in December. Economists suggest that even if there isn’t a rate cut, the Reserve Bank might need to lower the amount of cash banks must keep in reserve or use other methods to help banks lend more money. The Reserve Bank will also need to update its forecasts for inflation and GDP growth during this meeting since the inflation numbers have been higher than earlier estimates, and the actual GDP growth is below what was expected.