Image used for representative purpose only.
| Photo Credit: K.R. Deepak

READ MORE

India’s July-September growth slides: what options does RBI have? | Business Matters

| Video Credit:
The Hindu

Economic growth fell sharply to 5.4% for the quarter ended September. The important question is, what next?

Are we looking at a prolonged slowdown? And as importantly, will the Reserve Bank cut rates, something that observers have been expecting it to do for a while so that lower borrowing costs may spur growth? Or will the latest inflation print of a high 6.2% force its hand to maintain status? 

Presentation and direction: K. Bharat Kumar

Video: Thamodharan B.

Editing: Shibu Narayan

Reserve Bank of India (RBI) Governor Shaktikanta Das speaks at the Global Fintech Fest (GFF) 2024, in Mumbai on Friday.
| Photo Credit: ANI

The slowing of India’s economic growth to a 15-month low of 6.7% in the April-June quarter was due to “lower” government spending in the wake of the enforcement of the model code of conduct for the recent Lok Sabha polls, RBI Governor Shaktikanta Das said here on Saturday (August 31, 2024).

The RBI had projected a growth rate of 7.1% for the April-June quarter of this fiscal.

“The Reserve Bank projected a growth rate of 7.1% for the first quarter. However, the first advance estimation data released by the National Statistical Office showed the growth rate at 6.7%,” Mr. Das told reporters here.

The components and main drivers responsible for the GDP growth like consumption, investment, manufacturing, services and construction have registered a growth of more than 7%, he said.

Only two aspects have pulled the growth rate slightly down. Those are—government (both central and state) expenditure and agriculture, the RBI Governor pointed out.

He said the government expenditure was low during the first quarter perhaps due to elections (April to June) and operation of model code of conduct by the Election Commission.

“We would expect the government expenditure to pick up in coming quarters and provide the required support to growth,” Mr. Das said.

Similarly, the agriculture sector has recorded a minimal growth rate of around 2% in the April to June quarter. However, the monsoon was very good and spread all over India except a few areas. So, everyone is optimistic and positive about the agriculture sector, he noted.

“Under these circumstances, we have reasonably confident expectations that the annual growth rate of 7.2% projected by the RBI will be materialized in coming quarters,” the Governor asserted.

Making a flurry of revisions in the economy’s growth estimates, the National Statistical Office (NSO) on Thursday raised India’s real GDP growth esimate for this year to 7.6% from the 7.3% projected last month. It also scaled down its 7.2% growth estimate for 2022-23 to 7%, and raised its 2021-22 estimate from 9.1% to 9.7%.

The Gross Value Added (GVA) in the economy is projected to rise 6.9% this year, with the NSO downgrading last year’s GVA growth to 6.7% from 7%. GDP growth for the first two quarters of this year was raised to 8.2% and 8.1%, further rising to 8.4% for the the October to December 2023 quarter (Q3).

Economists expressed some surprise that GVA growth in Q3 slid to just 6.5% from revised estimates of 8.2% and 7.7% in Q1 and Q2, respectively. Concerns also persisted about private consumption, which grew 3.5% in Q3 from 2.4% in Q2, while the full year growth estimate was downgraded to 3% from the 4.4% reckoned in early January.

Struggling farm sector

Farm sector GVA growth slipped into a 0.8% contraction in Q3, and the full year is now expected to record a mere 0.7% rise, compared with 4.7% in 2022-23. Chief Economic Advisor V. Anantha Nageswaran said he expects the farm sector to recover next year, adding that industrial growth had lifted growth this year. Acceleration in GVA growth from three key sectors has helped: construction, up 10.7%; manufacturing, which is up 8.5% from a 2.2% dip in 2022-23; and mining, up 8.1% versus 1.9% last year.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, attributed this year’s growth upgrade to the downward revision to last year’s growth numbers, and the stronger investment and net exports, although consumption is lagging. “More intriguing is that the GVA estimates for this year have been left unchanged while GDP is sharply higher,” she said.

GVA growth in the employment-intensive trade, hotels, transport, communications, and broadcasting services sectors is expected to almost halve to 6.5% in 2023-24 from 12% in 2022-23. Mr. Nageswaran stressed that this comes on the back of very strong upticks in 2021-22 and 2022-23, so that this is more of a stabilisation rather than a dip.

Q4 growth to dip

“Some surprises that need further exploration relate to GVA growth remaining at 6.9% while GDP growth is being revised upwards to 7.6%. Also, the average GDP growth for the first three quarters of the year is 8.2%, implying that the fourth quarter growth would only be at 5.9%,” noted EY India chief policy advisor D.K. Srivastava.

“The data still has lot of noise in it as reflected in large swings in the discrepancy numbers for this year as well as last year. Interestingly, there has been a downward revision in the growth of demand-side drivers,” India Ratings and Research economists Sunil Kumar Sinha and Paras Jasrai said, highlighting that consumption demand remains weak and skewed towards items largely consumed by upper income households.