Indian Economy Projected to Grow 6.1% Fueled by Government Spending, Consumption and Exports Pose Challenges

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Reuters Poll Highlights the Role of Government in Driving Economic Growth Amidst Weak Consumption and Sluggish Private Investment

Mumbai – According to a recent Reuters poll of economists, the Indian economy is expected to grow by a robust 6.1% during the fiscal year, primarily driven by strong government spending. However, the poll also revealed that consumption and exports are likely to be the major obstacles to growth.

Consumer spending, which historically contributes to 60% of India’s GDP, has noticeably slowed down in recent times, failing to provide the support it once did. This has put the onus on the government to sustain economic growth by announcing substantial capital expenditure (capex) plans, as private investment has lagged behind.

Nearly 60% of economists surveyed (19 out of 33) believe that government spending will be the key driver of economic growth in the current fiscal year, which ends in March. Meanwhile, 12 economists pointed to investment playing a pivotal role. However, many experts who mentioned investment also emphasized that a significant portion of growth would be attributed to the government’s capex push, as private investment has not yet gained significant momentum.

Sakshi Gupta, principal economist at HDFC Bank, commented, “We clearly know exports are not going to be the primary driver, and when we look at consumption, we are beginning to get a sense it is going to slow down. So, then we’re left with the heavy lifting by the government – doing capex.” She further noted that while government-led investment would boost the economy, a significant increase in private sector investment is not expected in the near term, suggesting a continued trend of subdued private capex.

The median forecast from the survey indicates that the Indian economy will grow by 6.1% this fiscal year. However, the challenging global economic outlook raises the possibility of downward revisions in the coming months. The growth projections ranged from 3.7% to 6.9%. For the next fiscal year, the economy is expected to expand by 6.2%.

In terms of quarterly growth, the survey forecasts a growth rate of 7.3% for this quarter, followed by 6.2% and 6.0% in the subsequent two quarters, before slowing down to 5.5% in the March quarter of 2024.

When asked about the biggest obstacles to economic growth in the current fiscal year, 14 economists cited exports, while 13 mentioned consumption. Three economists pointed to investment, one to government spending, and two didn’t specify any particular factor.

Suman Chowdhury, chief economist at Acuite Ratings, highlighted the slowdown in manufacturing and certain export sectors such as petroleum, textiles, and two-wheelers. He expressed skepticism about a significant reversal in these sectors unless the global economic scenario improves. Some participants also expressed concerns about a potential slowdown in consumer spending, particularly in the rural economy, which is still in the process of recovery.

Dhiraj Nim, an economist at ANZ, stated, “Weak consumption is a concern…the rural economy wasn’t doing very well. It’s still recovering, and all of it totally adds up to a view consumption will remain an underperformer this year.”

Even before the COVID-19 pandemic, India’s private consumption cycle had been sluggish, and it grew by a mere 2.8% in the fourth quarter.

The Reuters poll provides valuable insights into the factors shaping India’s economic growth trajectory. As the government continues to drive investment through capex plans, addressing the challenges posed by weak consumption and exports will be crucial to sustaining and enhancing overall economic performance in the country.



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