India’s June Quarter GDP Growth Likely Slowed Due to Reduced Government Spending – Reuters

By Manoj Kumar

NEW DELHI – India’s economic growth is anticipated to have slowed in the April-June quarter, impacted by decreased government spending amid national elections and a stagnation in consumption.

A recent poll of 52 economists indicated a projected GDP growth of 6.9% year-on-year for the three months ending in June, marking the first quarter of India’s 2024/25 fiscal year. This figure is below the central bank’s estimate of 7.1% and a decrease from the previous quarter’s growth rate of 7.8%.

If these projections materialize, India will continue to hold its position as the fastest-growing major economy in the world. Official GDP growth rates for recent quarters have consistently surpassed initial forecasts.

For the entire fiscal year, the central bank anticipates a GDP growth of 7.2%, down from an 8.2% growth rate in the previous year, largely due to a reduction in state spending and the central bank’s stricter regulations on retail loans.

The government is expected to release the GDP figures for the April-June quarter on Friday.

Garima Kapoor, an economist at Elara Capital, noted that the uncertainty surrounding general elections negatively impacted infrastructure and capital expenditure during the June quarter, although economic activity appears to be on the mend. She stated, "Our real sector indices continue to signal a steady and healthy economy, led by consumption."

Government spending saw a decline of 7.7% year-on-year in the June quarter, in contrast to a 10.8% increase during the same period the previous year.

Political instability also negatively affected both investment and consumption, as highlighted by a Mumbai-based brokerage. Following setbacks in the general elections, Prime Minister Narendra Modi increased spending with an annual budget of $576 billion. This budget allocated significant funds for affordable housing and rural employment, aimed at stimulating the economy.

Economists anticipate that favorable rainfall this year will boost agricultural output, rural incomes, and consumer demand, a trend already visible in the rising sales of two-wheelers and tractors in July.

According to the brokerage, the current weakness in the economy can primarily be attributed to election-related uncertainties and reduced government spending. However, they cautioned that if growth momentum does not improve over the next few months, the annual growth forecast of 7% may be at risk.

Moreover, economists have expressed concerns that tight monetary policy could also limit growth. Earlier this month, the Reserve Bank of India decided to maintain its policy rate while concentrating on reducing inflation sustainably towards its medium-term target of 4%.

Despite strong growth in comparison to other economies, India continues to struggle with job creation and achieving more inclusive economic growth, which has adversely affected wages and consumption among lower-income households, as well as private sector investments.

A recent World Bank report indicated that "it will take India 75 years to reach one-quarter of U.S. per capita," emphasizing the challenges posed by growing demographic, ecological, and geopolitical pressures, which leave little room for error.