Growth may be slower in Q1: Poll of economists

Growth is likely to have slowed in the first quarter of this fiscal because of reduced government spending during the national elections and decreasing consumption. But still India will remain the fastest growing major economy in the world. These are some of the findings of a poll of 52 economists that the news agency Reuters has carried out.

GDP is likely to expand 6.9 per in the April-June quarter, the poll said. The government will announce GDP figures today evening.

Garima Kapoor, an economist at Elara Capital, told Reuters uncertainty surrounding the general elections negatively affected infrastructure and capital expenditure in the June quarter, but economic activity was recovering.

In a rare move, S&P Global Ratings on Wednesday raised its outlook for India to ‘positive' from ‘stable' while affirming the lowest investment grade sovereign credit rating (BBB-) ahead of the general election results due on June 4. “Our real sector indices continue to signal a steady and healthy economy, led by consumption.”

Government spending in the June quarter fell 7.7 per cent on year, compared with a 10.8 per cent increase during the same period a year earlier, she said.

Political uncertainty also weighed on investment and consumption during the April-June quarter, Mumbai-based brokerage Axis Capital said in a note.

Economists expect that favorable rainfall this year will enhance farm output, rural incomes, and consumer demand, a trend reflected in the increased sales of two-wheelers and tractors in July.

“At this stage, this weakness would be attributed to election-related uncertainty and slowdown in government spending,” Axis Capital said. “However, if growth momentum does not improve in the next few months, the annual growth forecast of 7 per cent could be at risk.”

However, economists warned that a tight monetary policy could also constrain growth. Earlier this month, the Reserve Bank of India maintained its policy rate, focusing on sustainably reducing inflation towards its 4 per cent medium-term target.

Despite strong growth relative to other economies, India is lagging on job creation and more inclusive economic growth, which has weighed on wages and consumption of lower income households as well as investments by private companies.

“It will take India 75 years to reach one-quarter of US per capita,” said a World Bank report released earlier this month, adding “with growing demographic, ecological and geopolitical pressures, there is no room for error.”