Economists polled from November 17-27 anticipate a slowdown in India’s gross domestic product (GDP) growth, projecting it to be 6.8% in the July-September quarter. This marks a decline from the previous quarter’s growth rate of 7.8%.
India to remain fastest-growing major economy, but demand uneven: Poll
According to a Reuters poll of economists, India’s economic expansion is anticipated to have moderated in the September quarter, albeit remaining robust. The slowdown is attributed to a global economic downturn impacting export growth, but strong service activity and solid urban demand are expected to provide support.
The median forecast of 55 economists polled from November 17-27 suggests that gross domestic product (GDP) growth is likely to have slowed to 6.8% in the July-September quarter, down from the previous quarter’s 7.8%. Despite this moderation, analysts consider it a minor dip from the exceptionally strong performance in the preceding quarter.
India, as Asia’s third-largest economy, is projected by the same group of economists to maintain growth rates exceeding 6.0% in the coming years, currently standing as the fastest among major economies.
Consumer demand, constituting around 60% of GDP growth, reportedly remained strong in the face of challenges such as erratic monsoons that contributed to a spike in inflation during the last quarter. Urban dwellers were a significant driving force behind this robust consumer demand.
The forecasts for the GDP data, set to be released on Thursday, varied between 5.6% and 7.4%, reflecting differing expectations among analysts.
In contrast to many economies that have witnessed significant slowdowns due to central bank interest rate hikes to combat inflation, the Reserve Bank of India’s efforts have been relatively mild. Capital expenditure in the first half of the fiscal year amounted to 4.91 trillion Indian rupees ($58.98 billion), surpassing the 3.43 trillion rupees recorded in the same period the previous year. Analysts anticipate a further increase in capital spending leading up to the national election scheduled for May 2024.
When asked about the primary drivers of economic growth for the remaining fiscal year, economists were almost evenly divided between government spending (14), consumption (13), and investment (5).
Consumer demand, a vital component constituting 60% of GDP growth, is not uniform across India, with two-thirds of the population residing outside of cities. While rural demand experienced a setback in the July-September quarter due to elevated prices for everyday items, urban demand remained resilient. Analysts, however, expect the weakness in rural demand to be temporary.
In response to a separate question, 69% of economists (20 out of 29) predicted that the gap between rural and urban consumption would narrow over the next two to three years. Six economists believed it would remain the same, while three anticipated a further widening of the gap.
Upasana Chachra, Chief India Economist at Morgan Stanley, expressed optimism, stating that an improvement in purchasing power, driven by moderating core inflation, would contribute to the recovery of rural consumption, narrowing the gap between rural and urban demand, as well as between goods and services.