Economy expected to grow at 7% in medium term: CEA V Anantha Nageswaran

Chief Economic Advisor (CEA) V. Anantha Nageswaran has projected that the Indian economy could sustain a growth rate of 7% in the medium term, building on the structural reforms implemented over the past decade. This optimism follows the release of the Gross Domestic Product (GDP) growth data for the first quarter of FY25, which highlighted a continued recovery in rural consumption.

Addressing reporters at a virtual press conference on Friday, Nageswaran noted, "Rural consumption has stabilized and is improving. A favorable monsoon will further boost rural and overall consumption in the coming quarters." He emphasized the importance of structural reforms and the positive impact of a good monsoon on the economy.

India recorded a GDP growth of 6.7% for the quarter ending June 2024. While some analysts had predicted a slowdown in GDP growth due to elections impacting government spending and capital investment, the CEA pointed out a better alignment between demand and supply sides of the economy. Private final consumption expenditure, gross fixed capital formation, and net exports have all held up well.

"The Indian economy is maintaining its growth momentum, and the private sector is beginning to invest," Nageswaran stated. He also expressed optimism about the agricultural sector, predicting a rebound due to normal rainfall and reservoir storage levels higher than the ten-year average. Higher year-on-year kharif sowing also indicates a positive outlook for rural demand and agricultural output.

Nageswaran reaffirmed the government's commitment to reducing the fiscal deficit, bringing it down from 5.1% to 4.9% for FY25 and aiming to meet the 4.5% target for FY26. He noted that both gross value added (GVA) at basic prices and GDP are recovering from the contraction caused by the Covid pandemic, which significantly impacted growth rates in early 2020-21 and 2021-22.

However, the CEA highlighted potential risks, including geopolitical conflicts that could disrupt supply chains, increase commodity prices, and revive inflationary pressures, potentially hindering monetary policy easing and affecting capital flows.

Nageswaran also acknowledged concerns over the softening of the consumer confidence index, attributing it to temporary household pessimism regarding employment and income. He emphasized the need for vigilance to ensure this trend does not become a longer-term issue.