India’s economic growth decelerated to 6.7% year-on-year in the April-June quarter, primarily due to reduced government spending during national elections. This figure was slightly below the 6.9% growth anticipated by a Reuters poll and a decrease from the 7.8% expansion observed in the previous quarter. However, India maintained its status as the world’s fastest-growing major economy, outpacing China’s 4.7% growth in the same period.
Key Insights:
- Growth Forecast and Economic Momentum: Despite the slowdown, India’s Chief Economic Advisor, V. Anantha Nageswaran, emphasized that growth momentum remains robust, bolstered by strong investment demand and positive business sentiment. Economists anticipate that easing inflation and increased government spending will drive growth in the upcoming months.
- Impact of Recent Elections and Government Spending: Prime Minister Narendra Modi’s administration has implemented measures to stimulate the economy following national elections. The Gross Value Added (GVA), a more stable economic indicator, rose by 6.8% year-on-year in the April-June period, slightly higher than the previous quarter’s 6.3%.
- Sectoral Growth and Consumer Spending: The manufacturing sector, contributing around 17% of India’s GDP, expanded by 7% year-on-year, while agricultural output increased by 2%. Consumer spending, which makes up about 60% of GDP, grew to a seven-quarter high of 7.4%, reflecting improved rural demand and higher agricultural incomes.
- Challenges and Future Outlook: Despite strong growth, India faces challenges in job creation and inclusive economic development. The government has ramped up spending, including a $576 billion annual budget focused on affordable housing and rural jobs. Economists predict that easing retail inflation could prompt the central bank to cut interest rates, potentially boosting consumption and investment.
While India’s growth has slowed, its economic performance remains strong compared to other major economies, with a positive outlook for future growth driven by structural reforms and government policies.
