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India maintains fastest growth among major economies

Economists expect India's slowdown to be temporary, with easing inflation and increased government spending likely to support growth in the coming months.

A drone view of the construction work of the upcoming coastal road in Mumbai, India. (Photo credit: Reuters)
A drone view of the construction work of the upcoming coastal road in Mumbai, India. (Photo credit: Reuters)

INDIA's economic growth slowed to 6.7 per cent year-on-year in the April-June quarter but remained the fastest-growing major economy globally, according to data released on Friday.

The increase in gross domestic product (GDP) was slightly below the 6.9 per cent growth predicted by a Reuters poll and lower than the 7.8 per cent growth seen in the previous quarter.


However, India's growth was still faster than China's 4.7 per cent expansion during the same period. Economists expect India's slowdown to be temporary, with easing inflation and increased government spending likely to support growth in the coming months.

V Anantha Nageswaran, India's chief economic adviser, said that growth momentum remained strong, driven by robust investment demand and positive business sentiment.

"In the medium term, the Indian economy can grow at a rate of 7 per cent plus on a sustainable basis if we can build on the structural reforms undertaken over the last decade," he stated after the data was released.

Following recent national elections, Indian prime minister Narendra Modi has introduced several measures to stimulate the economy. His Bharatiya Janata Party (BJP) did not secure an outright majority and is now relying on allies to govern, marking the first time in a decade this has occurred.

The Gross Value Added (GVA), considered a more stable growth indicator by economists, rose by 6.8 per cent in April-June compared to a 6.3 per cent increase in the previous quarter.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, noted that while GDP numbers were softer than expected, GVA remained firm with non-farm growth holding steady.

"We retain our GDP growth expectations of 6.9 per cent in 2024/25, supported largely by rural demand and government spending, while keeping an eye on the potential slowdown in urban demand, private capital expenditure, and global economic conditions," she said.

Consumer spending, accounting for about 60 per cent of GDP, rose to a seven-quarter high of 7.4 per cent year-on-year in April-June, compared to 4 per cent in the previous quarter. Capital investments also increased by 7.4 per cent, up from 6.5 per cent in the prior quarter.

However, government spending in real terms declined by 0.2 per cent year-on-year in April-June, following a 0.9 per cent rise in the previous quarter, according to the data.

Manufacturing, which constitutes about 17 per cent of India's GDP, grew by 7 per cent year-on-year in April-June, compared to an 8.9 per cent expansion in the previous quarter.

Agricultural output rose by 2 per cent year-on-year during the same period, up from 1.1 per cent in the previous quarter. Adequate rainfall this year is expected to boost farm output, rural incomes, and consumer demand, a trend seen in increased sales of two-wheelers and tractors in July.

Jobs challenge

Despite strong growth compared to other economies, India continues to face challenges in job creation and achieving more inclusive economic growth. These issues have impacted real wages, household consumption among lower-income groups, and private investments.

"Government capital expenditure will continue to be a major pillar of growth as in the previous year," said Suman Chowdhury, economist at Acuite Ratings, highlighting infrastructure spending.

The government has increased spending with the recent £440 billion annual budget, which includes significant allocations for affordable housing and rural jobs to boost economic activity.

Economists expect that easing retail inflation might lead the central bank to lower its policy rate later this year, potentially boosting household consumption and supporting private investments.

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