India's growth slumps to a two-year low amid sluggish sectors

India's economy has faced significant challenges, with a reported growth of only 5.4% in the second fiscal quarter ending September 2024. This expansion is notably lower than the anticipated rates, falling short of forecasts made by economists and the Reserve Bank of India, who expected growth figures of 6.5% and 7%, respectively. The latest figures highlight a consistent decline in growth rates, dropping from an earlier quarter's rate of 6.7%, and indicating the lowest growth rate since the final quarter of 2022. The sluggish performance has been largely attributed to a slowdown in key sectors such as manufacturing and mining. As the economic situation becomes increasingly critical, the yield on India's 10-year sovereign bonds reflected a negative response, dropping to 6.74% from approximately 6.8% following the GDP announcement. Analysts, including Harry Chambers from Capital Economics, have described the economic weaknesses as broad-based, predicting that economic activity may continue to struggle in upcoming quarters. This uncertainty could have implications for India's monetary policy, as the Reserve Bank of India's Monetary Policy Committee is slated to meet in early December 2024. Market expectations suggest that the RBI may maintain a pause on interest rate adjustments, sustaining the current repo rate at 6.5% despite facing mounting pressures from rising inflation. Alicia Garcia Herrero, the chief Asia-Pacific economist at Natixis, has echoed these concerns, while also framing a more cautious outlook for India in 2025. Herrero forecasts further economic slowdown but does not predict a complete collapse, offering a growth projection of around 6.4% for that year. She emphasized that the global economic landscape, including the impact of the United States' trade policies under the new administration, could have nuanced effects on India's economic trajectory. Herrero’s remarks hint at the complexities of the international economy and how India's positioning may evolve as trade dynamics shift towards nations like Vietnam. Overall, the weak GDP readings, the anticipated reactions from the RBI, and the global economic environment create a multifaceted context for India's economy as it grapples with lower growth rates and their potential long-term effects. The decisions made in the coming months by both policymakers and market participants will be crucial in determining whether India can steer its economy back towards a stronger trajectory amidst these challenges.