India GDP halves in September quarter as COVID distortions fade

India has posted annual economic growth of 6.3 percent in its July-September quarter, less than half the 13.5 percent growth in the previous three months as distortions caused by COVID-19 lockdowns faded in Asia’s third-largest economy.

Gross domestic product (GDP) growth for the full fiscal year, which ends on March 31, is likely to be 6.8-7 percent, the government’s chief economic adviser V Anantha Nageswaran said after the release.

That would be broadly in line with pre-COVID rates before pandemic lockdowns triggered wild fluctuations.

The rate for the September quarter, the second of India’s 2022/23 financial year, was just above the 6.2 percent forecast by economists in a Reuters poll.

Economists warned, however, that growth momentum may ease in the December quarter due to higher interest rates and slowing exports.

“Even as domestic growth drivers on the services side continue to remain robust, weakening global demand amid tightening financial conditions remains the key risk for growth outlook for India,” said Garima Kapoor, economist at Elara Capital.

The Reserve Bank of India has raised rates by 1.9 percent since May this year and is seen raising the rate again when its monetary policy committee meets in early December.

Slowing global growth has also started to hurt exports, which fell 17 percent over a year ago in October.

The Indian central bank has forecast GDP growth for the 12 months to March 31, 2023, at 7 percent but economists have seen a risk of a downside to these predictions.

Finance minister Nirmala Sitharaman, speaking at the Reuters NEXT conference in advance of the release, said she was looking forward to “a very good … growing Indian economy this year and the next,” driven in part by capital expenditure.

Government capital spending increased more than 40 percent during the September quarter as the federal government stepped up expenditure on infrastructure from roads to railways.

Aided by pent-up demand, particularly for services, private consumption grew 9.7 percent compared with a year ago, while capital formation, an indicator of investment, increased 10 percent annually.

“Services on the supply side and investments on the demand side would continue to be the main drivers of growth,” said Sujan Hazra, chief economist at Anand Rathi.

Among key sectors, agricultural output rose 4.6 percent while manufacturing fell 4.3 percent and the employment-generating construction sector saw a 6.6 percent annual increase in activity.

“In the case of manufacturing, it has been clearly affected by low growth for the small business sector and fall in profits that has affected value added for the organised sector,” said Madan Sabnavis, chief economist at Bank of Baroda.