India's GDP growth likely slowed in Q3 on shrinking demand

Despite the expected slowdown, India's economic growth would still be higher compared to China, which grew at 6.4 percent in the October-December quarter. The slowdown in Q3 is on account of the base effect of higher growth last year and liquidity constraints.

The economic data comes just days after the Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points to 6.25 percent, and changed its stance to "neutral" to boost a slowing economy as inflation has come down sharply.

"As regards domestic macroeconomic development, the Monetary Policy Committee (MPC) noted that the CSO has placed India’s real gross domestic product (GDP) growth at 7.2 percent in 2018-2019 with gross fixed capital formation accelerating but consumption expenditure moderating and net exports improving," Shaktikanta Das, governor of Reserve Bank of India (RBI) said in the monetary policy statement.

Economic growth could suffer from a possible slowdown in state spending in the two months before the general elections.

Factory output growth in December 2018 rose to 2.4 percent as compared to a 17-month low of 0.5 percent in November 2018, on account of contraction in the mining segment and poor show by the manufacturing sector.

Meanwhile, the Index of Industrial Production (IIP) slowed to 3.4 percent in the third quarter as compared to 5.6 percent earlier.