Expressing disappointment over the second-quarter gross domestic product (GDP) growth print of 5.4%, Chief Economic Advisor V Anantha Nageswaran said on Friday it doesn’t signal the beginning of a trend. There is no threat to 6.5% growth target for the current financial year, he said, while calling Q2 figure a “one-off” event.
The Economic Survey 2023-24 had forecast 6.5-7% GDP growth for FY25. The GDP expanded by 8.2% in FY24.
GDP rose by 5.4% in July-September year-on-year, the lowest in seven quarters, as weaker expansions in manufacturing and consumption hurt the economy.
However, Nageswaran said “there are enough reasons to believe that this 5.4% growth is one-off rather than the beginning of a trend.”
“Consumption in rural India is holding up. October sales of select items of manufactured goods in urban India did better. The agricultural and construction sectors are doing far better than they were last year. “
While the Q2FY25 number may have been somewhat disappointing, the top economist in the finance ministry said: “I think we should also use it as a good opportunity to put in place, not only hiring and compensation policies and practices in the private sector, but also use the opportunity to double down on deregulation and think of enhancing state capacity for undertaking public investment rather than revenue expenditure.”
“If we do that, then I think sooner, sooner rather than later, the second quarter group numbers will become a distant and fading memory.”
On whether lower GDP print will likely put pressure on cutting interest rates, Nageswaran said “we always maintained that we will not comment on monetary policy in public. All of us see the data. Central Bank is also seeing the data. They know what to do.”
Stressing that rural demand has been a bright spot, he said authorities will be taking note of the urban demand slowdown, which may be due to temporary factors such as the weather and some religious observances in the month of September.
“Nonetheless, I think the policymakers have taken out of the urban slowdown. We are already into the budget cycle and it will not be appropriate to comment on what action will possibly be taken on the fiscal side,” he said.
On implications on spending and fiscal deficit, if nominal GDP growth undershoots the budget estimate of 10.5%, he said the government would ponder over it. A lower nominal GDP growth print could overshoot the fiscal deficit target of 4.9% of GDP. However, analysts said up to Rs 1 lakh crore likely shortfall in capex will help the government meet the deficit target without much difficulty.
Elevated asset prices globally are a risk factor, he said, adding, that exports face greater uncertainties due to potential policy development elsewhere and an uncertain outlook for monetary policy and economic growth in advanced economies.
Limits to states’ capacity on capex, capital-intensive growth in the private corporate sector and the regulatory environment are medium- to long-term risk factors for economic growth, he added.