Reserve Bank of India (RBI) Governor Shaktikanta Das on August 31 attributed the slowing of India’s economic growth to “lower” government spending in the wake of the enforcement of the model code of conduct (MCC) for the recent Lok Sabha elections.
India’s gross domestic product (GDP) slowed to a 15-month low of 6.7 percent in April-June quarter of this fiscal against 8.2 percent in the year-ago period, official data showed.
Das noted that Reserve Bank had projected a growth rate of 7.1 percent for the April-June quarter of this fiscal.
“The Reserve Bank projected a growth rate of 7.1 percent for the first quarter. However, the first advance estimation data released by the National Statistical Office (NSO) showed the growth rate at 6.7 percent,” Das said.
The previous low GDP was recorded at 6.2 percent in January-March 2023.
The components and main drivers responsible for the GDP growth like consumption, investment, manufacturing, services and construction have registered a growth of more than 7 percent, he said.
Only two aspects have pulled the growth rate slightly down. Those are government (both central and state) expenditure and agriculture, Das pointed out.
He said the government expenditure was low during the first quarter perhaps due to elections (April to June) and operation of model code of conduct by the Election Commission.
“We would expect the government expenditure to pick up in coming quarters and provide the required support to growth,” Das said.
Similarly, the agriculture sector has recorded a minimal growth rate of around 2 percent in the April to June quarter. However, the monsoon was very good and spread all over India except a few areas. So, everyone is optimistic and positive about the agriculture sector, he noted.
“Under these circumstances, we have reasonably confident expectations that the annual growth rate of 7.2 percent projected by the RBI will be materialised in coming quarters,” the governor asserted.
India remains the fastest-growing major economy, as China’s GDP growth in the April-June quarter was 4.7 percent.
The agriculture sector recorded a 2 percent growth, down from 3.7 percent in the April-June quarter of 2023-24, as per the NSO data released on August 30. However, the growth in the manufacturing sector accelerated to 7 percent in the first quarter of the current fiscal compared to 5 per cent in the year-ago period.
Chief Economic Advisor (CEA) V Anantha Nageswaran on August 30 attributed India’s moderate GDP growth to Lok Sabha elections and subdued capital spending by the government. He, however, has maintained that the growth momentum is strong in Q1FY25.
“The growth momentum remains strong. The first quarter slowdown was anticipated due to the election and due to slowdown in government spending…there is healthy progress in monsoon, corporate and bank balance sheets are in good shape,” said the CEA.
