Indian Economic Growth Picked up Pace in the April-June Quarter

As per a Reuters poll, Indian economic growth likely picked up pace to 7.7% in the April-June quarter, the fastest annual growth in a year, on strong demand, robust service sector growth and increased government capital expenditure.

All but two of 51 economists surveyed between 18-24 August expected a Gross Domestic Product (GDP) growth to beat the 6.1% rate of the January-March quarter, with forecasts ranging between 5.6% to 9.1%.

Aditi Nayar, chief economist at ICRA, noted that economic activity in Q1 FY-2024 was boosted by improved investment activity and continued catch-up in services demand, particularly front-loading in government capital expenditure.

A private survey showed that the growth in the service sector, the main component of Asia’s third-largest economy, reached a 13-year high in July. The capital expenditure rose to about 2,785 billion rupees ($33.7 billion) during April-June 2023 from 1,750 billion rupees spent during the same period in the previous financial year.

According to a separate Reuters poll forecast, growth was moderate to 6.2% this quarter, followed by 6.0% next quarter before reducing to 5.5% in the last quarter of this financial year. However, economists state that India needs a higher growth rate to give employment to millions of unemployed youth.

Kunal Kundu, India economist at Societe Generale, said they expect India’s potential growth to reach but not exceed 6.5% over the next five years. Policymakers should target a growth rate of 8.5-9.0% on a sustainable basis to reduce the unemployment problem.

The Reserve Bank of India (RBI), which hiked the key repo rate 250 basis points to curb high inflation since last May, forecasts growth of 6.5% this financial year. This data is not expected to change the outlook for unchanged rates through Q1 2023 from the RBI.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in

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