India’s Growth Expected to Slow to 6.9% Last Quarter Due to Lagging Government Spending: Reuters Poll

By Devayani Sathyan

BENGALURU – India’s economic growth is expected to have slowed down, reaching its lowest rate in a year during the April-June quarter, primarily due to a reduction in government spending in the lead-up to the national elections that ended in June, according to a recent Reuters poll.

Previously, growth in Asia’s third-largest economy had remained above 7%, driven by strong capital investment from the government under Prime Minister Narendra Modi’s administration, which sought to secure a third term in office.

However, a decrease in public expenditure ahead of the parliamentary elections has negatively impacted growth. Although the Modi-led Bharatiya Janata Party (BJP) retained power, it no longer holds an outright majority in the lower house.

The gross domestic product (GDP) for the April-June quarter is projected to have grown by 6.9% year-on-year, down from 7.8% in the prior quarter, based on a poll of 52 economists conducted between August 19-26. Forecasts varied, predicting growth between 6.0% and 8.1%.

The government is set to release the official GDP data for the April-June period on Friday. Should the median forecast materialize, India would continue to be recognized as the fastest-growing major economy globally.

Previous quarters’ official GDP growth figures have often exceeded expectations. Dhiraj Nim, an economist at ANZ, noted, "The slowdown in public spending, both by the central and state governments, particularly in capital expenditure, has had a considerable impact. However, private consumption growth has shown improvement over the past quarter, and overall manufacturing and non-public services have remained stable."

Nim added that he would be monitoring the strength of the private consumption revival, as that could indicate the sustainability of growth rates in the future.

Looking ahead, growth is anticipated to slow down, averaging 7.0% for the current fiscal year and 6.7% in the following one, consistent with prior projections. Despite previous quarter’s growth nearing 8%, consumption—accounting for over 50% of GDP—expanded at just half that rate.

To stimulate consumption, the government allocated substantial funds for rural development and job creation in its first budget following the elections. Current government estimates suggest the economy might grow between 6.5% to 7.0% during this fiscal year.

Kunal Kundu, an India economist at Societe Generale, commented, "We expect a slight recovery in domestic demand, but it has not yet become a significant growth driver. The persistent weakness in core inflation indicates that a comprehensive recovery in real consumption may still be a few quarters away."

Consumer price inflation was recorded at 3.54% in July and is anticipated to average around 4.5% for the current and next fiscal years.