India’s Economic Growth Sputters to 4.5%, Weakest Since 2013

(Bloomberg) — India’s economy posted its weakest growth in more than six years last quarter, a blow to Prime Minister Narendra Modi as he exhausts all options to stem the fallout.

Gross domestic product rose 4.5% in the September quarter from a year ago, down from 5% in the previous quarter and compared with a median estimate of 4.5% in a Bloomberg survey of economists.

Core infrastructure industries’ output declined 5.8% in October, the biggest contraction since at least 2005, data released separately showed Friday.

The slowdown in Asia’s third-largest economy took a turn for the worst this year as consumers curbed spending, businesses held back on investments and export demand slumped. Having left much of the stimulus burden to the central bank early this year, Modi has recently taken bolder steps to reverse the decline, though the policy room for additional stimulus is narrowing.

“Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy,” Taimur Baig, chief economist at DBS Group Holdings Ltd. in Singapore, said before the GDP data. “Production and sales are under pressure, and public spending is running out of room due to poor tax collection.”

In recent months, the government has slashed corporate taxes, set up a special real-estate fund, merged banks and announced the biggest privatization drive in more than a decade. The Reserve Bank of India has already cut interest rates by 135 basis points this year to the lowest since 2009, with economists predicting more easing to come next week.

The weak growth outlook and interest-rate cuts are weighing on the rupee, the worst performing currency in emerging Asia this quarter.

India was the world’s fastest-growing economy until last year, posting quarterly growth rates of as high of 9.4% in 2016. A crisis among shadow banks — a key source of funding for small businesses and consumers — weak rural spending and a global slowdown have since conspired to bring down growth steadily.

“The onus is on the government to do the heavy lifting,” Devendra Pant, chief economist of India Ratings and Research, a local unit of Fitch Ratings Ltd., said before the data were released. He expects the government will miss this year’s fiscal deficit target of 3.3% of GDP as it boosts spending while tax revenue falters.

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