The GDP numbers released on Friday showed government spending helping to prop up weak demand, but private investment growth had virtually collapsed, with a crisis in the shadow banking sector causing illiquidity in the economy. Growing by 4.5% annually in the June-September quarter, down from 7% a year earlier, the economy is expanding well below the rate needed to boost the consumption demand and job creation. Economic growth has slowed in the September quarter, its weakest pace since 2013, despite a cumulative 135bps cut in policy rates this year.
Reserve Bank of India (RBI) is expected to make its sixth cut and would cut its repo rate by 25 basis points (bps) to 4.90% when the monetary policy committee?s decision is announced on Thursday, as economic growth was underperforming, inflation was overshooting, and the government lacked fiscal room to manoeuvre.
Annual retail inflation rose to 4.62% last month, climbing above 4% for the first time in 15 months and up from 3.99% in September. The September industrial output too contracted 4.3%, following a decline of 1.4% in August. ?Output of capital goods, which indicates investment activity in manufacturing, contracted 20.7% in September against a 6.9% expansion in the year-ago period.
Despite the monetary stimulus thus far and a slew of government measures to boost the economy, economists do not expect an immediate recovery in growth momentum.
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