India’s Economic Growth Slows to 6.7% in April-June Quarter

By Manoj Kumar

NEW DELHI (Reuters) – India’s economic growth slowed to 6.7% year-on-year in the April-June quarter. A decline in government spending during national elections impacted growth. Despite this, India remains the world’s fastest-growing major economy.

The GDP increase was lower than the 6.9% expansion forecast by a Reuters poll and down from 7.8% growth in the previous quarter. However, it outpaced China’s 4.7% growth rate during the same period. Economists expect the slowdown to be temporary, predicting that easing inflation and increased government expenditure will boost growth in the coming months.

V. Anantha Nageswaran, India’s Chief Economic Adviser, stated that growth momentum remains robust due to strong investment demand and positive business sentiment. He expressed that the Indian economy could sustainably grow at a rate of over 7% in the medium term if structural reforms from the last decade continue to be built upon.

Prime Minister Narendra Modi has taken steps to stimulate the economy following national elections, where his party, the BJP, could not secure an outright majority.

The Gross Value Added (GVA), considered a more stable growth measure, increased by 6.8% in April-June compared to a year earlier, improving from 6.3% in the prior quarter. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, remarked that while GDP figures were softer than expected, GVA remained firm with non-farm growth holding steady.

Bhardwaj retained GDP growth expectations of 6.9% for 2024/25, driven mainly by rural demand and government spending, though caution was advised regarding potential fatigue in urban demand.

Consumer spending, which accounts for about 60% of GDP, rose to a seven-quarter high of 7.4% year-on-year, compared to 4% previously. Capital investments also saw a rise of 7.4% compared to 6.5% in the previous quarter.

Nevertheless, government spending in real terms declined by 0.2% year-on-year in April-June, contrasting with a 0.9% rise in the previous quarter.

Manufacturing, comprising about 17% of India’s GDP, expanded by 7% year-on-year during the April-June quarter, down from an 8.9% expansion previously. Agricultural output increased by 2% year-on-year, improving from 1.1% in the prior quarter. Favorable rainfall is expected to enhance farm output, boosting rural incomes and consumer demand, underscored by the sales growth of two-wheelers and tractors in July.

JOBS CHALLENGE

Despite strong growth metrics, India grapples with challenges in job creation and achieving more inclusive economic growth, affecting real wages and consumption among lower-income groups.

Suman Chowdhury, an economist at Acuite Ratings, identified government capital expenditure as a critical growth driver, emphasizing infrastructure spending. The government has increased spending in the recent $576 billion annual budget, which allocates billions for affordable housing and rural job initiatives to invigorate economic activity.

Economists suggest that declining retail inflation may prompt the central bank to lower its policy rate later this year, potentially boosting household consumption and supporting private investments.