India's Economic Growth Slows on Weak Urban Consumption

India's economic growth trajectory took a turn in the September quarter, as indicated by a Reuters poll, with GDP growth likely slowing due to weak urban spending. This article explores the factors behind this slowdown and its implications for the Indian economy.

The poll, conducted among economists, projected India's GDP growth for the July-September quarter to be around 5.4% year-on-year, down from 6.7% in the previous quarter. The main driver of this slowdown was weak urban consumption, which accounts for 60% of India's GDP. Higher food inflation, high borrowing costs, and weak real wage growth contributed to the decline in urban spending.



The manufacturing sector was particularly impacted by the slowdown in urban consumption, with growth slipping to 2.2% from 7% in the previous quarter. The services sector, however, remained resilient, growing by 7.1% despite the dip in manufacturing. The agricultural sector also contributed to the overall growth, with a robust performance of 3.5%.



The government's spending and investment played a crucial role in mitigating the slowdown, with government consumption growing 4.4% during the quarter. However, expectations for the upcoming quarters remain uncertain, with some economists predicting a hold on interest rates due to inflation concerns.

The Reserve Bank of India (RBI) had previously projected real GDP growth of 7.2% for the fiscal year ending in March 2025. However, the slowdown in the September quarter has raised questions about the sustainability of this projection. Some private economists have revised their growth forecasts downward, reflecting the challenges faced by the Indian economy.

In conclusion, India's GDP growth slowed in the September quarter due to weak urban consumption, particularly in the manufacturing sector. While the government's spending helped offset some of the impact, the outlook for the coming quarters remains uncertain. As the Indian economy navigates these challenges, investors and policymakers alike must remain vigilant and adapt to the evolving economic landscape.