India's Growth To Remain Soft In Q3 In Contrast To RBI Bullishness, Says Nomura

India's growth momentum is poised to moderate in the third quarter and will likely remain soft going ahead into the December quarter, in contrast to the Reserve Bank of India's bullish projection, according to Nomura Global Markets Research.

The softness in economic growth is largely driven by investment, while consumption and industrial activity indicators are also moderating, Sonal Varma, managing director and chief economist (India and Asia ex-Japan) Nomura, told NDTV Profit.

Nomura India Coincident activity index—a combination of high frequency real activity data covering consumption investments and exports—has moderated in the third quarter and signals that the December quarter is likely to be soft, the research firm said. "We also see that the index has moderated below the 100 thresholds indicating the momentum is weakening."

The sequential momentum in GDP growth is likely to slow sharply in the third quarter, with year-on-year GDP growth likely to be lower than the previous fiscal's second-quarter reading, Nomura said in a note.

Government spending and other components of growth will pick up, but on aggregate, there is likely to be a growth cycle moderation, Varma said.

The positive offsets are playing against some of the softness in terms of high interest rates, moderating credit growth and still subdued global markets, Varma said. "On net, it is unlikely that GDP growth is going to exceed 7% in the third or fourth quarter."

The GDP print is likely to be "much weaker" than what the RBI is expecting, she said.

India's central bank reduced its gross domestic product forecast for India by 20 basis points to 6.8% for the second quarter of fiscal 2025.

The softness in growth is not globally driven, the chief economist said. Export and related indicators have been soft but most of the moderation is domestic demand-driven indicators, according to Varma.

With headline inflation likely to rise in October, monetary policy has its work cut out, and will need to activate ‘flexible’ inflation targeting to balance tradeoffs, she said in the note.