With a reduction in government expenditure during the general elections, India’s economy expanded at 6.7 per cent in the April-June quarter (Q1), marking the slowest pace in five quarters. Yet, the government asserted that the growth momentum is strong and a 6.5-7 per cent growth estimate for full fiscal is realistic.

Despite the slowdown on a quarterly basis, India remained the world’s fastest-growing major economy. GDP (Gross Domestic Product), which reflects demand in the economy, grew by 6.7 per cent in the quarter under consideration, compared to 8.2 per cent during the same period of the last fiscal and 7.8 per cent in the previous quarter. GVA (Gross Value Added), which reflects supply in the economy, rose to 6.8 per cent during Q1 of FY25 compared to 8.3 per cent in the corresponding quarter of the last fiscal and 6.3 per cent of the previous quarter.

“In the medium term, the Indian economy can grow at a rate of over 7 per cent on a sustained basis if we can leverage the structural reforms undertaken over the last decade,” Chief Economic Advisor V Anantha Nageswaran said in a virtual briefing. Further, he said that the private sector is beginning to invest as evinced by RBI’s study paper released earlier this month.

Manufacturing, which accounts for about 17 per cent of India’s GDP, grew by 7 per cent year-on-year in the April-June quarter, compared to an 8.9 per cent expansion in the previous quarter. Agricultural output grew 2 per cent year-on-year in the same period, up from 1.1 per cent in the previous quarter. Abundant rainfall this year is expected to boost farm output, rural incomes and consumer demand, a trend reflected in the increased sales of two-wheelers and tractors in July. 

According to DK Srivastava, Chief Policy Advisor with EY, the first quarter data, clearly indicates that the GoI should accelerate its infrastructure spending to compensate for the negative growth in its capital expenditure in the first four months at (-)17.6 per cent. “Unless this is addressed and converted into a positive annual growth of 17 per cent or more, the likelihood is that the annual real GDP growth may fall below 7 per cent,” he said.

Swati Arora, Economist with HDFC Bank said she expects GDP growth of 6.8 per cent with support from recovery in demand (led by the rural sector), exports and likely pickup in private capital expenditure and continued government capital spending. “For the coming quarters, we expect GDP growth to range between 6.5-7 per cent,” she said.

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