India’s June quarter GDP growth likely eased as government spending cuts By Reuters

By Manoj Kumar

NEW DELHI (Reuters) – India’s economic growth is expected to have slowed in the April-June quarter due to cuts in government spending during national elections and stagnant consumption.

A Reuters poll of 52 economists had forecast GDP growth of 6.9 percent year-on-year for the three months to June, the first quarter of India’s 2024/25 fiscal year. This is below the central bank’s estimate of 7.1% and the growth rate of 7.8% in the previous quarter.

If the projection holds, India will remain the fastest growing major economy in the world. Official GDP growth figures for recent quarters have consistently topped forecasts.

For the full fiscal year, the central bank expects the economy to grow 7.2 percent, slower than 8.2 percent the previous year, dragged down by a contraction in government spending and tighter bank rules centers on retail loans.

The government is due to announce GDP figures for the April-June quarter at 12:00 GMT on Friday.

Garima Kapoor, economist at Elara Capital, said uncertainty surrounding the general election had negatively impacted infrastructure and capital spending in the June quarter, but economic activity was picking up.

“Our real sector indices continue to signal a stable and healthy consumption-led economy.”

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

Political uncertainty also weighed on investment and consumption in the April-June quarter, the Mumbai-based brokerage The capital of the Axis (NYSE: ) said in a note.

After a setback in the general election, Prime Minister Narendra Modi increased spending with an annual budget of $576 billion. The budget included billions of dollars for affordable housing and rural jobs meant to boost the economy.

Economists expect this year’s favorable rainfall to boost agricultural output, rural incomes and consumer demand, a trend reflected in rising sales of two-wheelers and tractors in July.

“At this stage, this weakness would be attributed to election uncertainty and slowdown in government spending,” Axis Capital said.

“However, if the pace of growth does not improve over the next few months, the 7% annual growth forecast could be at risk.”

However, economists warned that tight monetary policy could also constrain growth.

Earlier this month, the Reserve Bank of India (RBI) kept its policy rate on hold, focusing on a sustained reduction in inflation towards its medium-term target of 4%.

Despite strong growth compared to other economies, India lags behind in terms of job creation and more inclusive economic growth, which has hurt wages and consumption by lower-income households, as well as investment by private companies.

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