New Delhi: India’s economic growth is projected to have slowed to 6.7% in the April-June quarter, down from a robust 7.4% in the preceding quarter, according to a recent survey of economists. This slowdown is attributed to weak urban demand, muted private capital expenditure, and declining industrial activity. However, strong government capital expenditure and increased exports to the US amid tariff uncertainties have supported growth, slightly exceeding the Reserve Bank of India’s (RBI) projection.
Slowing Economic Growth Amidst Global Uncertainties
India’s economy is showing signs of slow but steady progress, even as analysts predict a moderation in growth. The latest estimates suggest that economic expansion for the April-June quarter will settle at approximately 6.7%. This figure represents a decline from 7.4% in the previous quarter, reflecting weaknesses in urban demand, private capital expenditure, and industrial performance.
Despite these challenges, the resilience of the economy is underscored by robust government spending and a strategic front-loading of exports, particularly to the US. These exports are crucial amidst ongoing global trade uncertainties and potential tariff implications that threaten to destabilize various sectors of the Indian economy.
According to economist projections, GDP growth is anticipated to range between 6.2% to 7.0% for this financial quarter, with all indicators suggesting a softer momentum compared to the preceding quarter. Interestingly, the expected growth of 6.7% does mark a slight increase from the 6.5% recorded in the same period last year.
Government Spending and Rural Demand as Key Support
Radhika Rao, an economist at DBS Bank, has indicated that government expenditure is set to be a primary driver for GDP in the first quarter. After the slowing government spending seen during the elections last year, a revitalization of capital expenditures is expected. Coupled with steady output from the services sector and some improvement in rural demand, this should theoretically provide a boost to the economy.
However, Rao also cautions about the limitations. Signs of moderate industrial output and sluggish growth in personal loans, alongside delays in the transmission of borrowing costs, signal only a modest pick-up in urban demand. There is a palpable concern that if the predicted economic growth holds true, it will at least be marginally above the Reserve Bank of India’s own projections of 6.5% for this quarter.
Geopolitical Risks and Future Projections
The RBI’s Monetary Policy Committee has raised flags about evolving risks stemming from geopolitical issues and global trade uncertainties as potential dampeners for future growth. “Amidst continuing tariff-induced uncertainty for exports and private capex, we fear that growth will taper off in the subsequent quarters,” remarked Aditi Nayar, chief economist at Icra Ltd. She projects that these factors may confine India’s GDP expansion to around 6.0% by FY26.
This sentiment is particularly relevant as the United States prepares to impose an additional 25% tariff on Indian goods due to recent oil purchases from Russia, effective from August 27. Such developments underscore the fragility of the current growth trajectory.
RBI’s Monetary Policy and Growth Support
In a proactive stance, the RBI has already implemented policy rate cuts totaling 100 basis points since February, aimed at bolstering economic activity. Governor Sanjay Malhotra has assured that the central bank will continue to explore policy measures to support the economy, particularly if tariff-related disruptions adversely impact growth.
For example, businesses reliant on exports may find themselves reeling under these new tariffs, which can influence pricing strategies, profit margins, and operational viability. That said, the long-term vision for the Indian economy remains optimistic, with government officials focusing on areas of economic resilience and growth.
The Path Forward for India’s Economy
Navigating through this complex landscape calls for innovative strategies and sound fiscal policies to stimulate growth even further. Both governmental and industry stakeholders must remain vigilant about the evolving economic environment. While current trends point to challenges, India also enjoys significant strengths, including a strong workforce and an emerging digital economy, which could serve as robust pillars for future growth.
As illustrated by individual businesses adapting to the changing landscape, resilience and agility are imperative. For instance, many firms are pivoting towards enhancing their digital capabilities, allowing them to tap into new markets and customer bases that were previously unexplored, thereby contributing positively to economic growth.
In conclusion, while the Indian economy faces hurdles, the combined efforts of the RBI and the government, alongside individual firms navigating the shifting landscape, can help sustain a hopeful trajectory.
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Original source: www.livemint.com
