India`s economy grew a lower-than-expected 7.1 percent in the July-September quarter from a more than two-year high of 8.2 percent in the previous quarter, government data showed on Friday. The latest quarter`s annual pace was lower than a Reuters poll forecast of 7.4 percent.

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COMMENTARY:

A PRASANNA, CHIEF ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI

"The July-September GVA/GDP data was a big negative surprise. The surprise seems to be concentrated in finance, insurance and real estate sub-segments. Tighter credit conditions since September mean the growth outlook has further worsened. However, the recent fall in oil prices and a prolonged pause by the monetary policy committee should support consumption growth and nascent signs of a capex recovery. After today`s data we have cut our GDP growth forecast to 7.3 percent for the full fiscal year compared with 7.5 percent before."

"In terms of policy action, status quo on rates and durable liquidity provision by the central bank will continue. However, liquidity injection is not improving transmission in the bond market and credit spreads remain high. The RBI (Reserve Bank of India) should have a rethink on improving efficiency of transmission. This data also increases risk that the government will ramp up spending and breach its fiscal deficit by a wider margin than we envisage." 

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"2QFY19 GDP missed consensus slightly despite favourable base effects, with the slowdown concentrated in consumption on the expenditure-end. Farm sector performance and non-public admin sectors have been a drag on sectoral breakdown. The softer 1HFY growth pace will reinforce expectations that March 2019 growth will be sub-7 percent by the March 2019 quarter, with full-year real GDP growth to be close to 7 percent." 

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"We do not think RBI will immediately change its stance from calibrated tightening. While markets are largely pricing in no action from RBI on the rate front, the guidance will be watched out for and there could be traces of dovishness in RBI`s communication with sharp favourable movements in the rupee and crude prices as far as imported inflation is concerned. This could further add fuel to the bond market."