India’s growth likely slowed to 6.9% last qtr as govt spending lagged: Poll | Economy & Policy News

India’s economic growth likely moderated and grew at its slowest pace in a year in the April-June quarter due to lower government spending amid a national election that concluded in June, a Reuters poll found.

Growth in Asia’s third-largest economy had been well above 7 per cent during previous quarters thanks to strong capital expenditure by the government led by Prime Minister Narendra Modi in a bid to secure a third term in the election.

However, holding back on public spending ahead of the parliamentary elections has hurt growth. While the Modi-led Bharatiya Janata Party (BJP) came back to power, it lost its outright majority in the lower house.

In the April-June quarter, gross domestic product (GDP) was forecast to have grown an annual 6.9 per cent, down from 7.8 per cent in the preceding quarter, the Aug.19-26 poll of 52 economists showed. Forecasts ranged from 6.0 per cent to 8.1 per cent.

The government is scheduled to announce data for the April-June quarter on Friday.

If the median forecast is realised, India will remain the world’s fastest growing major economy.

Official GDP growth releases for the preceding few quarters have surpassed predictions.

“The public spending slowdown was significant both by the centre and the states, especially on the capex front. So, there is the transitory element of growth slowdown. However…private consumption growth was better than the previous quarter and overall manufacturing and non-public services were steady,” said Dhiraj Nim, an economist at ANZ.

“I will be watching out for how strong the private consumption revival is because that would perhaps tell us how sustainable growth rates become over the coming quarters.”

Going forward, growth was expected to moderate, averaging 7.0 per cent this fiscal year and 6.7 per cent in the next, unchanged from a previous poll.

While economic growth in the previous quarter was close to 8 per cent, consumption – accounting for over 50 per cent of GDP – grew just half that pace.

To boost consumption, the government assigned billions of dollars to rural spending and job creation in its first post-election budget.

The economy was expected to grow 6.5-7.0 per cent this fiscal year, the latest government estimates showed.

“We anticipate a modest improvement in domestic demand, although it has not yet emerged as a significant driver of growth…the sustained weakness in core inflation suggests that real consumption recovery is still a few quarters away,” noted Kunal Kundu, India economist at Societe Generale.

Consumer price inflation, 3.54 per cent in July, was expected to average around 4.5 per cent this fiscal year and next.

First Published: Aug 26 2024 | 10:19 AM IS