India’s March quarter GDP growth hits lowest in a year as prices hit consumers

A bird flies through the rooftops of the financial district in central Mumbai, India, June 18, 2019. REUTERS/Francis Mascarenhas

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  • Economy grows 4.1% in January-March compared to 5.4% in the October-December quarter
  • Manufacturing fell 0.2% from an expansion of 0.3% in the previous quarter
  • Economic growth for 2021/22 revised down to 8.7% yoy from 8.9%
  • Government adviser says inflationary pressure will remain high

NEW DELHI, May 31 (Reuters) – India’s economic growth slowed to a one-year low in the first three months of 2022, hit by weakening consumer demand amid price spikes that could make it more difficult for the central bank to control inflation without hurting growth.

Gross domestic product rose 4.1% year-on-year in January-March, government data showed on Tuesday, in line with economists’ forecast of 4% in a Reuters poll, and below 5.4% growth in October-December and growth of 8.4% in July-Sept.

The short-term outlook for the economy has darkened due to a surge in retail price inflation, which hit an eight-year high of 7.8% in April. Soaring energy and commodity prices caused in part by the Ukrainian crisis are also compressing economic activity.

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“Inflationary pressures will remain elevated,” said V. Anantha Nageswaran, chief economic adviser at the finance ministry, after the data was released, adding that the risk of stagflation – a combination of slow growth and high inflation – was low in India. .

Reuters Charts

Rising energy and food prices weighed on consumer spending, the main driver of the economy, which slowed to 1.8% in the January-March period from the year quarter, compared with an upwardly revised growth figure of 7.4% in the previous quarter, data showed on Tuesday.

Garima Kapoor, an economist at Elara Capital, said slowing global growth, high energy prices, a cycle of rising interest rates and tighter financial conditions would all be major headwinds.

It revised down its annual economic growth forecast for the current fiscal year which began April 1 to 7.5% from an earlier estimate of 7.8%.

The Indian government has revised its annual GDP estimates (INGDPY=ECI) for the fiscal year that ended March 31, predicting growth of 8.7%, down from its previous estimate of 8.9%.

The Reserve Bank of India (RBI) this month raised the benchmark repo rate (INREPO=ECI) by 40 basis points at an unscheduled meeting, and its monetary policy committee signaled it would levy more rate hikes to control prices.

Economists expect the MPC to raise the repo rate by 25 to 40 basis points next month.


Economists said weaker consumer demand and shrinking manufacturing activity were of concern.

High-frequency indicators showed supply shortages and rising input prices were weighing on output in the mining, construction and manufacturing sectors, even as credit growth slowed. accelerates and states spend more.

Manufacturing output contracted 0.2% year-on-year in the three months to March, from an expansion of 0.3% in the previous quarter, while agricultural output growth accelerated to 4.1% versus a 2.5% expansion in the prior quarter, the data showed.

The more than 4% depreciation of the rupee against the US dollar this year has also made imported items more expensive, prompting the federal government to restrict wheat and sugar exports and cut fuel taxes, joining the RBI in the fight against inflation.

“With rising inflationary pressures, the consumer recovery remains under a cloud of uncertainty for 2022/23,” said Sakshi Gupta, senior economist at HDFC Bank.

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Reporting by Manoj Kumar and Aftab Ahmed, additional reporting by Rama Venkat in Bengaluru; Editing by Ed Osmond, Jane Merriman and Gareth Jones

Our standards: The Thomson Reuters Trust Principles.

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