India’s economic growth slowed to 6.7 percent on-year in the April-June quarter, official data showed Friday, as lower government outlays and lacklustre consumer spending weighed on the world’s fifth-largest economy.
Friday’s reading still places the world’s most populous country among the fastest-growing major economies globally.
But the figure is unwelcome news for Prime Minister Narendra Modi, whose party suffered the surprise loss of its parliamentary majority after elections in June.
It may also put pressure on the Reserve Bank of India to cut interest rates after holding them steady at 6.50 percent for more than 18 months.
Year-on-year gross domestic product grew at its slowest pace in five quarters and came in below the Indian central bank’s estimate of 7.1 percent.
The Indian economy had expanded to 7.8 percent on-year in the previous March quarter.
Experts say the pace of growth slowed in part due to sluggish government capital expenditure.
Businesses have also blamed protracted summer heatwaves in parts of the country for hampering store footfalls and urban consumption.
Rating agency ICRA said half of the economic indicators it tracks saw a “deterioration” in the June quarter, partly blaming the hot weather for “dampening” mobility and travel.
“These include air cargo traffic, rail freight, consumption of petrol and diesel… (and) domestic airlines’ passenger traffic,” ICRA said in a note this month.
Modi’s Bharatiya Janata Party (BJP) failed to secure an outright mandate in this year’s general elections, leaving it reliant on regionalist coalition parties to govern.
Its two biggest allies have reportedly sought billions of dollars in financial assistance for infrastructure projects in their states.
Modi’s government pledged in its post-election budget to spend $24 billion on employment and training to address uneven economic growth and mollify disgruntled voters.
Rising food costs in India have added to Modi’s political troubles and also prevented the central bank from dropping its hawkish inflation stance.
The latest growth data could spur the bank to start cutting rates this year.
“The GDP number is below expectations and apart from that, the recent headline inflation numbers also came below the 4 percent mark. This paves the way for the central bank to cut rates by the end of the 2024,” said Apurva Sheth, chief markets analyst at SAMCO Securities.
Experts also believe that surplus monsoon rains in the second quarter will aid rural economic recovery by bringing down food inflation
While India posted world-beating growth of 8.2 percent in the year to March, the International Monetary Fund expects the pace to cool to 7 percent for the 2024-25 fiscal year.
The benchmark Nifty index ended 0.33 percent higher ahead of Friday’s GDP results.
