India’s gross domestic product (GDP) grew by a whopping 7.8 per cent in the April-June quarter of this financial year.
GDP, the total value of the goods and services produced by a country in a particular period, had grown 13.1 per cent in the corresponding period last year, while the growth for the whole of last financial year was at 7.2 per cent.
The 7.8 per cent growth estimates the quarter’s GDP at Rs 40.37 lakh crore against Rs 37.44 lakh crore in the corresponding quarter last year. The Reserve Bank had predicted GDP Q1 at 8 per cent.
While as usual, the services sector has done the heavy lifting, this uptick has also been powered by a surge in capital spending by the Central and state governments, as well as robust spending (consumption) by private individuals. The agriculture sector fared decently, followed by construction, trade and tourism.
The government was a big spender too, with capital being released for anything from road construction to other infrastructure projects. A new SBI report even pointed out how states that are set to go for assembly elections this winter, like Andhra Pradesh and Madhya Pradesh, have been particularly big spenders.
So far so good. However, worries now abound that this could well be it, as global tailwinds lead the world’s fastest-growing major economy to decelerate from here on. Overall GDP for the ongoing financial year, which ends on March 31, 2024, is likely to be around 6.1 per cent or so, with the growth likely to temper down in the next couple of quarters at least.
The reasons being attributed range from inflation to global uncertainty. While inflation, or price rise, seemed to be under control over the past several months after shooting up post the Russian invasion of Ukraine, they have been acting up recently, manifesting in anything from spiralling tomato prices to other daily staples. Worries abound over erratic monsoon patterns and their impact on overall agri pricing in the months to come. These months are crucial as it is the season of festivals, closely followed by the general elections.
The RBI’s consistent moves to increase repo rates to combat inflation — bank interest rates have been hiked by 2.5 per cent over the past several months for this purpose—could have its natural impact on business growth, as capital becomes hard to come by.
The high level at which inflation is persisting in other major economies is also having a domino effect in the form of reduced demand for Indian exports. Uncertainty on growth in consumption rates by citizens, a natural if capital spending is squeezed, has been cited by some economists as a possible reason for the drop in growth rate in the remaining months of the financial year.
Finance minister Nirmala Sitharaman, however, in a recent interview, had pooh-poohed this estimate, pointing out how the coming months include the festive season when Indians loosen their purse strings, and that she remained optimistic.
In comparison, China’s GDP growth slowed down to 6.3 per cent, while the US registered 2.1 per cent growth in the same period. The UK GDP increased by just 0.4 per cent and Japan’s by 6 per cent, while Germany’s GDP showed a decrease by 0.2 per cent.