India’s gross domestic product (GDP) growth decelerated to 6.7% in the April-June quarter, a sharp drop from 8.2% in the same period last year, according to government data released on Friday. The slowdown is primarily attributed to a weaker performance in the agricultural sector.
Despite the dip, India maintains its position as the fastest-growing major economy, outpacing China’s 4.7% GDP growth in the same quarter.
The Reserve Bank of India (RBI) had anticipated a 7.1% GDP growth for Q1 in its latest monetary policy projections, with the full-year growth forecasted at 7.2%. Political uncertainty during the quarter also impacted investment and consumption, further contributing to the slowdown.
“The low-base effect apart, improvement in agricultural growth and lower food inflation will augur well for private consumption, particularly in rural areas. Higher agricultural growth will augment income and lower food inflation will improve discretionary spending ability,” CRISIL Chief Economist Dharmakirti Joshi said. “In addition, government spending on employment and asset generating schemes (PM Awaas Yojna for urban and rural areas) can provide additional support to consumption growth in rest of the fiscal. That said, unlike last fiscal, rural consumption is expected to outpace urban, as higher interest rates impact urban areas more. The signs of this are visible in the Reserve Bank of India’s (RBI) consumer confidence survey released in August. Net-net, we expect the economy to grow at 6.8% GDP for this fiscal,” Joshi added.
The Gross Value Added (GVA) increased by 6.8% year-on-year, up from 6.3% in the previous quarter, signaling a more stable growth trajectory.
Manufacturing, which constitutes about 17% of India’s GDP, grew by 7% in Q1, down from 8.9% in the previous quarter. The agricultural sector saw a modest 2% year-on-year growth, an improvement from 1.1% in the previous quarter.
However, abundant rainfall this year is expected to boost agricultural output, rural incomes, and consumer demand, as evidenced by rising sales of two-wheelers and tractors in July.
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares and Stock Brokers said, “Looking ahead, we anticipate full-year GDP growth for the current financial year to align closely with our estimate of 7%. This robust growth, coupled with falling inflation, is expected to support continued outperformance in the Indian equity market. However, the strong growth figures may prompt the Reserve Bank of India (RBI) to maintain the current monetary policy rates throughout 2024.”