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By Pranoy Krishna
BENGALURU (Reuters) -India’s economy likely slowed to 6.7% in the April–June quarter, a Reuters poll of economists showed, as weak industrial activity and subdued private investment offset a rebound in government spending.
The Indian government has ramped up capital spending during the first quarter of this fiscal year, but weak consumer demand has kept private investment subdued in Asia’s third-largest economy.
The Reserve Bank of India’s (RBI) efforts to spur demand by cutting the key repo rate by 75 basis points during the same period, including a larger-than-expected half-percentage-point reduction in June, have had a muted impact on growth. Many private banks have yet to pass on lower rates to consumers.
An expected slowdown in gross domestic product (GDP) to 6.7% from 7.4% in the previous quarter according to the median forecast of 70 economists in an August 18–26 Reuters poll is still slightly higher than the RBI’s recent forecast of 6.5%.
Forecasts for the data, due on August 29, ranged from 6.2% to 7.3%.
The poll showed India GDP growth slowing to 6.5% this quarter, 6.3% in October-December and 6.2% in January-March. Growth was forecast to average 6.3% this fiscal year, the slowest in five years.
“Industrial growth has not been very good, and manufacturing is also showing sluggish signs,” said Madhavankutty G, chief economist at Canara Bank. “Tariffs and global uncertainties have been one of the major factors that created a shock – and that has slowed private capex.”
Gross value added (GVA), a measure of economic activity considered more stable than GDP, rose 6.4% in the June quarter, the poll predicted. GVA excludes volatile indirect taxes and government subsidies.
Kunal Kundu, India economist at Societe Generale, said the boost from indirect tax changes and subsidy cuts that lifted GDP above GVA in January-March likely faded in April–June, adding that structural challenges are holding back faster growth.
While easing food prices and robust growth in the agricultural sector have kept rural demand resilient, economists said stagnant wages and job cuts were holding back urban consumption.
That has prompted the government to ramp up spending, which began long before recent deteriorating ties with the U.S., a major buyer of India’s services exports and India’s top destination for exported goods.
Capital expenditure surged 52% year-on-year to around 2.8 trillion rupees ($32.00 billion) as of June data. Prime Minister Narendra Modi has also proposed lowering consumption levies on everyday goods and small cars to boost demand.
Some economists warn urban consumption will only rebound if private investment accelerates.
“At 6.4–6.5% (GDP growth), we won’t be able to create meaningful employment on a sustained basis,” said Debopam Chaudhuri, chief economist at Piramal Group.
“Government expenditure and infrastructure investments can take some of the load in generating employment…(but) it is private capex that has to pick up, to ensure good-quality, high-paying jobs for a large section of our population.”
(Reporting by Pranoy Krishna; Polling by Devayani Sathyan and Vijayalakshmi Srinivasan; Editing by Hari Kishan, Ross Finley and Louise Heavens)
