India’s economic growth slowed to 5.4 per cent in the July-September quarter, a seven-quarter low, raising concerns and calls for action. This drop surprised analysts who had predicted over 7 per cent growth and led the Reserve Bank of India (RBI) to lower its growth forecast for 2024-25 from 7.2 per cent to 6.6 per cent.
The slowdown prompted calls for the RBI to cut interest rates to stimulate demand. Finance and commerce ministry officials supported these calls, highlighting a difference in views on growth and inflation between the government and the central bank. A finance ministry report suggested the RBI’s policies and other factors contributed to weaker demand.
While urban demand has decreased, rural demand remains strong, offering a positive sign for future growth. Recent data indicates some economic recovery and easing inflation, although food prices, especially for vegetables, remain high. These factors raise hopes for an interest rate cut in February. However, global monetary policies, particularly in the US, complicate this decision.
Global uncertainty and US tariff policy under incoming President Donald Trump add further pressure. While some Indian policymakers see potential benefits if the US imposes tariffs on China, others urge preparation for potential negative impacts on India.
Economists and experts, in a pre-budget meeting with Prime Minister Narendra Modi, stressed the need for continued reforms to boost growth amid global tensions and uncertainty. The Union Budget, expected in February, is anticipated to reveal the government’s plans to stimulate growth and protect the economy from global challenges. Hopes are high for tax cuts to encourage consumer spending.
