India’s economic growth has rebounded after bountiful harvests boosted rural consumption and the government of Prime Minister Narendra Modi ratcheted up spending.
Government data on Friday showed India’s GDP grew 6.2 per cent in the quarter to the end of December from the same period a year earlier, offering some relief to Modi, who has recently sought to cushion the squeezed middle-class.
Growth was up from the revised 5.6 per cent in the three months to the end of September, but below the 6.3 per cent forecast by a Reuters poll of economists and the central bank’s 6.8 per cent estimate.
Even though India’s GDP has been expanding faster than any other major economy, the shine has come off after three previous consecutive quarters of slowing growth due in part to weak corporate investment and waning consumption among urban Indians who form the backbone of the economy.
Many economists believe India needs to maintain around 8 per cent GDP growth to hit Modi’s goal of making it a developed nation by 2047 — the centenary of independence. On Friday, the government revised up its growth forecast for the full financial year ending in March by only 0.1 percentage point to 6.5 per cent.
“Today’s data reiterated that growth has bottomed out in the September quarter,” said Anubhuti Sahay, head of India economic research at Standard Chartered, adding that the “broader narrative” of a “cyclical slowdown and weak private sector investment remains intact”.
Net foreign investment during April to December fell to about $1.2bn, down from $7.8bn over the same period in the previous year, according to central bank data. India’s stock market has also experienced an exodus of overseas funds.
Modi’s government is attempting to bolster the economy through tax breaks announced in this year’s budget for middle-class Indians, who have been squeezed by stagnant wages and high inflation.
Growth in government spending reached 8.3 per cent, up from 3.8 per cent in the previous quarter. The GDP expansion was also propped up by rural and festival season spending.
“There are some short-term factors which are driving growth up,” said Dhiraj Nim, India economist at ANZ Research in Mumbai, adding that policy support would be needed on a “sustained basis” to further shore up the economy.
The Reserve Bank of India under new central bank governor Sanjay Malhotra this month lowered headline borrowing costs for the first time in five years to support growth, cutting the benchmark repo rate 0.25 percentage points to 6.25 per cent.
The rupee has also come under sustained pressure and Malhotra has cautioned that India faces heightened external risks since US President Donald Trump came to office.
Modi’s recent trip to Washington to meet the president was partly seen as an attempt to cement India’s growing ties with the US, but also to prevent punishing reciprocal tariff barriers on exports, including medicine and textiles.