The real GDP growth for April to June 2024 stood at 6.7%, marking a five-quarter low.
This growth is lower than the Reserve Bank of India's (RBI) projection of 7.1% for Q1, which was revised down from an earlier estimate of 7.2%.
The lower-than-expected GDP growth indicates a cooling in economic momentum, though some of this can be attributed to base effects.
Growth in GVA for the economy was slightly better at 6.8%, showing a narrowing gap with the GDP figures after a year of divergence.
This suggests that the productive sectors of the economy performed relatively better than the overall GDP numbers indicate.
Factors Affecting Economic Growth:
Monsoon and Agriculture:
Hopes for a normal monsoon were tied to boosting farm sector output, which could alleviate inflation and stimulate rural demand and private consumption.
Farm GVA growth rose to a four-quarter high of 2%, but concerns remain about the monsoon’s erratic and uneven patterns, which could affect crop yields and food prices.
Private Consumption and Public Spending:
Private consumption spending reached a six-quarter peak of 7.4%, aided by easing inflation, although food prices are still high.
Public capital expenditure (capex) was expected to play a significant role, with the government planning a 17% increase in capex to ₹11.11 lakh crore.
However, the stretched general election has delayed public capex, necessitating increased efforts to meet spending targets.
Challenges and Risks:
Inflation and Monsoon Impact:
The erratic monsoon could impact the kharif crop, leading to concerns over food inflation, which is a critical factor for the RBI’s policy decisions.
There is a possibility of a 1% GDP growth loss this year and next if interest rate cuts are delayed, as indicated by the RBI’s monetary policy committee members.
Growth Projections:
While India may still achieve a growth rate of 6.5% to 7% for this year, growth is expected to slow down to 6.5% in 2025-26.
The medium-term growth potential is expected to hover around 6.5%, which is considered insufficient for India’s needs.
Need for Reforms:
Policy Reforms:
IMF official Gita Gopinath emphasized the urgent need for meaningful reforms across all sectors of the economy.
Improving the efficiency of institutions and the judiciary is also crucial to enhancing growth potential.
Economic and Demographic Considerations:
To fully leverage India’s demographic dividend, it is vital to create gainful employment for the youth.
Accelerating economic reforms is critical to achieving the desired growth rates and ensuring sustainable development.
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