India’s economy seen losing speed as rising rates hurt demand

Gross domestic product probably rose 4.7% last quarter from a year ago, according to a median estimate of economists in a Bloomberg survey ahead of data due Tuesday at 5:30 p.m. local time. That will be the slowest quarterly performance since the 4.09% expansion in the three months ended March last year.

Economists are projecting growth of 6.9% for the fiscal year from April 2022 to March 2023 — a tad below the government’s prior 7% estimate and slightly higher than the International Monetary Fund’s 6.8% projection.

Waning consumption, which accounts for 60% of GDP, risks hurting growth in Asia’s third-largest economy, as borrowing costs rise. The Reserve Bank of India has increased interest rates by 250 basis points since May to tame inflation and signaled it isn’t ready to pause just yet, amid growing dissent within the rate-setting panel.

“My fear is that all sources of demand in the economy are contracting at the same time,” Jayanth Rama Varma, an external member of RBI’s Monetary Policy Committe ..

With exports struggling on waning global demand and the government forges ahead with fiscal consolidation, Varma said rising borrowing costs will dent household budgets and, in turn, consumption. For Shashanka Bhide, another rate setter, demand in the economy is fueling inflation.