The slowdown in India's gross domestic product in the first quarter of the current fiscal year has been owing to the general elections and a fall in the government capital expenditure during the period, Chief Economic Advisor (CEA) V Anantha Nageswaran said.
“Slight slowdown in GDP was anticipated due to elections and lower government capex in Q1. It was well within anticipation. Contraction due to Covid pandemic is behind us, GDP and GVA will continue to accelerate. Private sector capital formation is happening, it's playing its part in expanding the GDP scenario,” Nageswaran said at a media briefing on August 30 after the GDP data was announced.
The GDP growth fell to a five quarter low of 6.7 percent in the first quarter of FY25 compared with 7.8 percent in the previous quarter.
Nageswaran said that India can easily look at achieving 6.5-7 percent of GDP growth in FY25 as estimated in the Economic Survey. In fact, he said that over 7 percent growth can also be achieved as the Budget provides further boost for employment generation.
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“The Indian economy is sustaining the growth momentum. Although, there is potential for escalation of geopolitical risks. But we expect crude prices to remain in the current range. There is, however, no anticipation that we will confront higher crude prices,” he said.
With higher private fixed capital formation and good monsoon, there are expectations of healthy growth in private sector capital formation. These will register healthy growth trends in coming quarters, the CEA said.
Meanwhile, net FDI inflows to India declined from $42 billion during FY23 to $26.5 billion in FY24.
“The decline in net FDI does not reflect loss of confidence in the Indian economy. Net FDI reflected profitable exits in FY24. It should act as an inducement in future. We have continued confidence from foreign portfolio investors. Gross FDI has been on an uptrend. Domestic retail investors are also showing resilience,” he said.
Core Inflation
Despite an unfavourable base effect, the core sector output grew 6.1 percent yoy in July 2024 better than the previous month (5.1 percent yoy).
“Core inflation rate has not seen a spillover from food inflation. Improvement in supply side may have prevented spillover of food inflation into core inflation. We will be starting a formal investigation into it,” he said.
Rural economy
Though the agricultural growth in April-June slowed to 2 percent as compared to 3.7 percent in the first quarter of previous fiscal, the CEA said it should see a rebound into the financial year as most divisions have experienced normal rainfall.
“Growth rate in agriculture is bottoming out,” he said.
Rural demand has seen a pickup, which is likely to get a further fillip in the coming months, he said.
“Two wheeler sales in the first four months are higher than last year. There is a modest rise in tractor sales as well. Rural consumption has stabilised and a good monsoon will give further fillip,” he added.
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