That marked the slowest pace of economic expansion recorded since the quarter ended March 31, 2013. Consumer demand and private investment weakened and a global slowdown hit exports, hurting the economy, which had expanded 5.0 per cent in the previous quarter. The economy is struggling against a growth slowdown due to low demand and thousands of job losses across sectors.
Friday's economic data highlights a prolonged slowdown in the economy, with growth coming in below the 7 per cent mark for the fourth quarter in a row. Many economists and financial institutions have lowered their growth projections for the year ending March 2020.
In an official press release, the Central Statistics Office (CSO) said three economic activities - 'trade, hotels, transport, communication and services related to broadcasting', 'financial, real estate and professional services' and 'public administration, defence and other services' - registered growth rates above 4.3 per cent in the September quarter.
Growth in 'agriculture, forestry and fishing' and 'mining and quarrying' was at 2.1 and 0.1 per respectively, whereas 'manufacturing' activity contracted 1 per cent, according to the CSO.
The GDP data for the latest quarter comes at a time when stress in the country's financial sector, slowing demand, multi-year low auto sales and weak industrial production have hampered economic growth. India lost its position as the world's fastest growing major economy last year. The government has set a target of making the country a $5-trillion economy by 2024.
Chief Economic Advisor Krishnamurthy Subramanian emphasized the fundamentals of the economy remain strong and said GDP growth is expected to pick up in the December quarter.
Economists say GDP growth is expected to pick up in the coming months. "The GDP data confirmed fears of weak growth momentum. Measures taken by the government should boost growth in the second half (of 2019-20), however we will closely monitor high-frequency data," said Anagha Deodhar, economist, ICICI Securities. (Here's what economists say)
The economy needs to grow at around 8 per cent to create enough jobs for the millions of young people joining the labour force each year; yet many economists see the current slowdown continuing for another year or two.
The government has announced a slew of measures in the past months to spur investments to revive growth, including withdrawal of higher taxes on foreign investors, reduction in corporate taxes, a mega merger of state-run banks, a special window for the real estate sector and a massive disinvestment plan. However, some surveys still show business confidence is at multi-year lows.
Some economists, however, believe that there may be limited room left for authorities to stimulate growth. The Reserve Bank of India (RBI) has so far this year reduced the repo rate - which is the key interest rate at which it lends short-term funds to commercial banks - by 1.35 percentage point to 5.15 per cent.
"A rate cut is definitely on the cards. Although we are skeptical about monetary policy's effectiveness in boosting growth in the current scenario, growth concerns are likely to make a strong case for rate cut,” Ms Deodhar said.