India’s Gross Domestic Product (GDP) expanded by 6.7% year-on-year in the first quarter of the 2024 fiscal year, slightly below the 6.8-7% growth forecasted by most economists.
The slowdown, attributed mainly to reduced government expenditure during the national elections, has nonetheless kept India in its position as the world’s fastest-growing major economy, outpacing China’s 4.7% growth during the same period. Despite the modest decline in growth, analysts expect a rebound in the coming months, driven by easing inflationary pressures and increased government spending. The Gross Value Added (GVA), a key measure of economic output, grew by 6.8% compared to the same period last year, an improvement from the 6.3% recorded in the previous quarter.
The manufacturing sector, which constitutes roughly 17% of India’s GDP, recorded a growth rate of 7% in the April-June quarter, down from 8.9% in the preceding quarter. Meanwhile, the agricultural sector witnessed a growth of 2%, up from 1.1% in the previous quarter. Increased rainfall is expected to boost agricultural production, raising rural incomes and stimulating consumer demand, as reflected in the increased sales of two-wheelers and tractors in July. The trade, hotels, transport, and communication sectors, while recording a growth of 5.7%, lagged behind the overall non-agricultural growth rate of 7.6%. Consumer spending, accounting for approximately 60% of GDP, surged by 7.4% compared to 4% in the previous quarter. Capital investments also increased by 7.4%, up from 6.5% in the preceding quarter.
Economists foresee a possible reduction in the policy rate by the Reserve Bank of India (RBI) later this year if retail inflation continues to decline. Such a move could boost household spending and support private investments, further propelling economic growth. However, government expenditure saw a contraction of 0.2% in real terms year-on-year in the April-June quarter, contrasting with the 0.9% growth registered in the preceding quarter. Despite mixed trends in private consumption, there are early signs of a revival, particularly in rural areas, where improved agricultural growth and lower food inflation are expected to drive private consumption higher.
CRISIL analysts suggest that increased government spending on employment and asset-generation schemes, such as the Pradhan Mantri Awaas Yojana, could provide additional support to consumption growth throughout the fiscal year. The Reserve Bank of India’s consumer confidence survey from August also indicates strengthening rural consumption trends. Kotak Mahindra Bank projects GDP growth of 6.9% for the fiscal year 2024/25, supported mainly by rural demand and government expenditure, while remaining cautious of potential slowdowns in urban demand, private capital expenditure, and the pace of global economic deceleration. The RBI forecasts that India’s economy will grow by 7.2% for the full fiscal year, down from 8.2% in the previous year, citing reduced state spending and tighter regulations on retail loans as contributing factors to the lower growth projection.
