India’s Fiscal Q1 GDP Growth Slows Down to 6.7%

KAKALI DAS

India’s GDP numbers have been released, bringing both good and bad news. On the positive side, India continues to be the fastest-growing major economy globally, with a GDP growth of 6.7% in the first quarter of this financial year—covering April, May, and June. In comparison, China’s growth stood at 4.7%, solidifying India’s leading position. This is the good news.

On the downside, the growth rate is decelerating. In the same quarter last year, GDP growth was 8.2%, driven by a post-pandemic rebound, which was not entirely sustainable.

India’s Fiscal Q1 GDP Growth Slows Down to 6.7%

However, consider the previous quarter—January, February, and March—during which GDP growth was still robust at 7.8%.

India’s central bank was fairly optimistic, forecasting 7.1% growth for this quarter. However, the actual growth rate came in at 6.7%, falling 0.4 percentage points short of the RBI’s prediction. This marks the slowest growth in five quarters. So, what went wrong?

Most experts attribute the slowdown to a couple of key factors:

Reduced government spending: With a general election held in the last quarter, public expenditure was restrained, as governments typically avoid significant spending during election periods.
Low private consumption: Many businesses reported a decline in footfall, which they attributed to the heatwave. Fewer people in stores led to reduced spending, and less spending translated to slower economic growth.
Agricultural slowdown: The agriculture sector grew by 3.7% in the first quarter last year, but this year, growth dropped to just 2%. The intense heatwaves reported across North India likely hampered output, contributing to this decline.

But it’s not all bleak—there’s been plenty of rain in the second quarter, raising hopes that farming will rebound and boost growth.

In other sectors, the outlook is promising. Manufacturing grew by 7% last quarter, up from 5% the previous year. The construction sector expanded by 8.6%, and services grew by 7.1%. This positive performance suggests a favorable trajectory.

The ratings agency Moody’s has upgraded India’s outlook, now expecting the country to grow by 7.2% this year, up from their earlier forecast of 6.8%.

That said, these figures are likely to raise some questions. As the first GDP report of Prime Minister Modi’s third term, a stronger performance might have been anticipated. However, the Chief Economic Adviser has stated that the results were expected and maintains that the growth outlook remains strong.

It also presents a challenge for the Reserve Bank, which has maintained steady interest rates since February of last year.

But will these numbers prompt a reassessment? Might the RBI consider cutting rates to stimulate growth? It’s challenging to do so with food inflation at 5%.

These numbers will definitely be analyzed in the coming days, so let’s focus on the broader perspective. India continues to defy global trends amidst two major conflicts—one in West Asia and the other in Europe—leading to widespread supply chain disruptions.

Additionally, major economies are experiencing slowdowns. The US and Japan have reported sluggish growth, Germany is stagnating, and China is struggling to regain momentum. Despite these global challenges, India continues to advance.

Consider exports in the last quarter: India experienced an 8.7% growth, while the global average was just 1%.

Wealth creation also appears robust. According to a recent IBEF report, India is producing a new billionaire every five days—imagine that! In 2014, India had 109 billionaires; now, the number has risen to 334.

Together, their combined worth stands at $1.9 trillion, surpassing the GDP of Saudi Arabia. Quite impressive, isn’t it?

However, here’s the less impressive aspect: billionaires account for more than half of India’s GDP. This highlights the country’s next major challenge—ensuring equity.

Our economic pie is growing each quarter. The key challenge is ensuring that everyone receives a share of it.

02-09-2024

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