India's economic growth slows momentum in late 2018

NEW DELHI: India’s economy lost momentum in the approach to a general election, with the annual growth rate slipping to 6.6 percent in the October-December quarter, dragged down by weaker consumer demand.

A Reuters poll of economists had forecast growth of 6.9 percent for the latest quarter, compared with a downwardly revised 7.0 percent in July-September.

The Statistics Ministry also revised the economic growth estimate for the current fiscal year ending March to 7.0 percent from an earlier estimate of 7.2 percent.

The data for 2018’s last quarter comes amid tension between India and Pakistan following tit-for-tat air strikes in the wake of a February 14 suicide car bombing that killed at least 40 Indian paramilitary police in Kashmir.

Some economists said if the tensions escalate, it could dissuade foreign investors from entering India and hit tourist inflows, impacting growth slightly in coming quarters.

The quarterly data released on Thursday is the last to be published before a general election due by May in which Prime Minister Narendra Modi hopes to win a second term.

The growth pace in October-December was still faster than China’s 6.4 percent, but India’s economy has decelerated from the more than two-year high of 8.2 percent growth in April-June 2018.

“The number is disappointing,” said Anita Gandhi, director at Arihant Capital Markets, adding the GDP growth could be seen by voters as a report card on the government.

“People will see it on a year-to-year basis, not just a quarter and this could have an impact given elections are near,” she said.

Data from the Statistics Ministry showed the decline in growth was led by a slowdown in consumer spending and investments.

Consumer spending, which accounts for near 60 percent of the economy, slowed to an 8.4 percent rise annually in the December quarter, compared to a revised 9.9 percent rise in the previous quarter.

Gross fixed capital formation – which include spending on roads, ports, airports and power plants – rose 10.6 percent compared with a revised 10.2 percent annual increase in the previous quarter.

The manufacturing sector grew at 6.7 percent annually, the data showed, while services, including construction, grew at 7.6 percent from a year ago period.

Critics says Modi has not done enough for the manufacturing sector or created sufficient jobs for the nearly 20 million youths entering the job market each year.

Growing signs of weakness in the economy, most alarmingly in rural communities where incomes have been hit by falling farm prices, forced Modi this month to increase state spending, and make direct cash transfers to farmers.

That could marginally help growth rates, but also increase the government’s debt.

On February 7, the Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points to 6.25 percent, and changed its stance to “neutral” to boost a slowing economy as inflation has come down sharply.