India's Economic Outlook

By Vivek Mishra and Anant Chandak

BENGALURU (Reuters) – According to a Reuters poll of economists, India's economy is poised for solid growth this fiscal year and the next. However, there are concerns that job creation and household spending will see only mild increases over the coming 12 months.

The previous fiscal year saw an impressive growth rate of 8.2%, the highest among major economies, largely driven by government spending. Despite this growth, the economy has struggled to generate sufficient high-quality jobs for the millions entering the labor force annually.

Private investment has lagged significantly in the past decade, leading many job seekers to aspire for government positions. Economists have pointed to subdued household spending and a lack of government reforms as the main contributors to declining confidence in private sector investment and job creation. This situation suggests that economic benefits are being concentrated among a small segment of the population.

The economic growth rate is anticipated to decelerate to 6.9% this fiscal year, slightly below the International Monetary Fund's (IMF) projection of 7%. The outlook for the following fiscal year predicts a further drop to 6.7%, eventually reaching 6.6% in FY 2026/27, according to the Reuters poll of 48 economists conducted from October 21-28.

Aditya Vyas, chief economist at STCI Primary Dealer Limited, stated, "For economic growth to take off, consumption … needs to see an upturn. Deeper issues such as job creation and a strong increase in private investment need to be addressed; otherwise, growth will not exceed the average trend."

After slightly recovering to 6.8% growth last quarter, up from 6.7% in the April-June period, the growth rate is expected to stabilize at 7% for the upcoming quarters, consistent with long-term trends.

However, many economists believe the economy must reliably grow beyond 8% over an extended period to generate enough job opportunities.

In response to inquiries regarding job creation in India for the next year, 15 of 28 respondents indicated a mild increase, while nine predicted no change. Kunal Kundu, an economist at Societe Generale, commented, "With manufacturing struggling, particularly in the MSME (Micro, Small, and Medium Enterprises) sector, we do not foresee significant improvement in employment. A modest job market and the prevalent negative real wages suggest only modest employment growth ahead. Consumption is likely to remain weak."

Although consumer spending, which comprises 60% of the economy, has recently risen, escalating inflation is compelling many households to limit food purchases and deplete their savings, hinting that consumption may continue to slow in the near future.

Concerning private consumption in the next 12 months, 19 out of 28 economists surveyed expect a mild increase, while five predict stability. Sakshi Gupta, principal economist at HDFC Bank, noted, "There will be some cyclical recovery in private consumption. However, a significant part of this increase will likely stem from recovering rural demand, which has previously been a major impediment to overall consumer demand."

Gupta further expressed concerns about the uncertain global environment, stating, "This brings an element of uncertainty as well as risk for domestic economic activity and job creation."

(Other stories from the October Reuters global economic poll)