A shopkeeper prepares lanterns for sale ahead of Diwali, the Hindu festival of lights, in Mumbai on November 8, 2023.
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Data showed on Friday that India’s economic growth slowed to 6.7% in the fourth to June quarter from a year earlier due to lower government spending during national elections, but it remained the fastest-growing major economy in the world.
Gross domestic product (GDP) growth was lower than the 6.9% forecast in a Reuters poll, compared with 7.8% growth in the previous quarter.
Still, growth in April-June was faster than the 4.7% pace in Asia’s largest economy, China, while India’s slowdown is expected to be temporary as economists forecast slower inflation and a pick-up in government spending. will boost economic growth in the coming months.
India’s Chief Economic Advisor V. Anantha Nageswaran said that growth momentum remains strong, supporting strong investment demand and optimistic business sentiment.
“In the medium term, if we can build on the structural reforms we have undertaken over the past decade, the Indian economy can grow at a rate of over 7% on a sustainable basis,” he told reporters after the data was released.
Prime Minister Narendra Modi has taken a number of steps to shore up the economy since recent national elections, which saw his Bharatiya Janata Party fail to win an outright majority and have to rely on allies to run the government for the first time in a decade.
Gross value added, considered by economists to be a more stable indicator of growth, rose 6.8% annually from April to June, compared with 6.3% in the previous quarter.
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank in Mumbai, said the GDP data was weaker than expected, but GVA remained strong and non-agricultural growth remained strong.
“We maintain our forecast for GDP growth of 6.9% in 2024/25, driven by rural demand and government spending, while keeping a close eye on possible weakness in urban demand, private capital spending and the pace of the global economic slowdown,” she said.
Consumer spending accounts for about 60% of GDP, with an annual increase of 7.4% from April to June, a seven-quarter high, compared with 4% in the previous quarter. Capital investment also grew 7.4%, compared with 6.5% in the previous quarter.
However, data showed that actual government spending fell by 0.2% from April to June compared with the same period last year, after growing by 0.9% in the previous quarter.
Manufacturing, which accounts for about 17% of India’s GDP, grew 7% annually in the April-June quarter, compared with 8.9% growth in the previous quarter.
Agricultural output increased by 2% annually during the same period, higher than the 1.1% increase in the previous season. Adequate rainfall this year is expected to boost agricultural output, farmer incomes and consumer demand, a trend evident in growth in two-wheeler and tractor sales in July.
employment challenges
Despite strong growth relative to other economies, India faces challenges in creating jobs and more inclusive economic growth. These problems affect real wages, household consumption of low-income groups and private investment.
“Government capital spending will continue to be the main pillar of economic growth, as it was last year,” Acuite Ratings economist Suman Chowdhury said of infrastructure spending.
The government last month increased its annual budget by $576 billion, including billions for affordable housing and rural jobs to stimulate economic activity.
Economists expect easing retail inflation could lead the central bank to cut policy rates later this year, potentially boosting household consumption and supporting private investment.
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