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For Prime Minister Narendra Modi’s government, the slowdown is an obstacle to ambitious growth goals and will make it difficult to deliver on pledges to create more jobs. Already cracks are starting to emerge on how to deal with the slump, with the finance and trade ministers calling for interest rate cuts, but the central bank governor holding firm on his inflation target.
India’s main opposition party has also accused Modi’s government of ignoring the economic plight of the middle class.
Data due at 4 p.m. local time on Friday is expected to show further evidence of the slowdown. Gross domestic product likely grew 6.5% in the three months to September, according to economists surveyed by Bloomberg. That would be the slowest pace in six quarters and lower than the central bank’s projection of 7% for the period. Consumption by households and businesses make up almost 60% of GDP.
“Slow hiring in technology sector and muted profitability for manufacturers is likely impacting real income and wage growth amid elevated inflation,” said Elara’s economist Garima Kapoor.
Major IT services exporters — Tata Consultancy Services Ltd., Infosys Ltd., Wipro Ltd., and HCL Technologies Ltd. — reported a 3.3% increase in employee cost in the three months to September from a year ago, down from about 8% in the same period in 2023, according to data compiled by Bloomberg.
Falling wages mean households would need to dip into their savings or take on more debt to keep spending.
“Consumer spending flows like blood in any economy,” analysts Nikhil Gupta and Tanisha Ladha of Motilal Oswal Financial Services Ltd. wrote in a report this month. “The primary factor responsible for weak consumer finances in India is the subdued income growth.”
Household consumption will remain a “drag in this quarter and next,” Kapoor from Elara said. The brokerage has revised its GDP growth estimate to 6.8% for the year through March 2025 compared to 7.1% earlier.