Bengaluru:

India's economy likely grew at its slowest pace in a year in the third quarter due to weak demand. The likelihood of growth significantly exceeding their forecasts is slim, according to a Reuters poll of economists.

The country's gross domestic product (GDP) grew unexpectedly by 8.4 percent year-on-year in October and December. This was due to a sharp reduction in subsidies, which artificially inflated net indirect taxes. However, economic activity, measured by gross value added (GVA), recorded a more modest growth of 6.5 percent.

The economists who participated in the survey assumed that this situation was unlikely to be repeated in the last quarter.

Growth in Asia's third-largest economy is expected to have slowed to 6.7% between January and March, more in line with the long-term GDP growth rate, according to a Reuters poll of 54 economists. GVA growth is expected to slow to 6.2%.

Most economists in the survey said growth likely declined due to a slowdown in manufacturing and services, and also pointed to a muted contribution from agriculture.

Forecasts for GDP growth were in a range of 5.6 to 8.0 percent. The data is expected at 12:00 GMT on May 31, just days before the announcement of the results of the general election on June 4. Prime Minister Narendra Modi is expected to win a rare third term.

“We expect some sanity to return,” said Kunal Kundu, India economist at Société Générale. “In terms of components, we do not expect any major improvements.”

More than two-thirds of economists who answered a supplementary question said the probability of GDP growth significantly exceeding their forecast was low, while the rest said it was high.

“Core inflation continues to decline, recording its lowest growth since the start of the pandemic, a symptom of weak domestic demand,” Kundu said.

Private consumption, which accounts for 60 percent of GDP, is also expected to see weaker growth in the coming quarters.

Economic growth, which is expected to have averaged 7.7% last fiscal year, is expected to slow to 6.8% this fiscal year and 6.6% next, suggesting that the world's fastest-growing economy is still a long way off from achieving consistent growth of 8%.

While most economists believe that at least 8% growth is needed to create enough new jobs for the millions of young people entering the workforce, some are skeptical about whether this can be achieved in the long term.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said 5 to 6 percent was a “reasonable” potential growth rate for the Indian economy.

“However, to realise this potential, reforms need to be implemented, and Modi 2.0 has taken several steps backwards in this regard – by rolling back agricultural reforms, delaying the implementation of new labour laws and largely abandoning regional trade agreements.”

A growing divergence between financial economists' GDP forecasts and government estimates also raises questions about how India measures growth.

The National Statistics Office (NSO) expects GDP growth of 5.9 percent in the first quarter.

“I think informal sector GDP is slightly overestimated… which is why the situation on the ground is probably not as rosy as the numbers suggest,” says Dhiraj Nim, economist at ANZ.

The informal sector contributes almost half of the country's GDP and employs about 90% of India's workforce.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)