Good performance of agriculture and financial sectors helped Indian economy to grow by 7.8 per cent in April-June quarter of fiscal year 2023-24 (Q1FY24), Statistics office reported on Thursday. Though the government is optimistic about momentum, experts do not agree.

Economic growth based on GDP (Gross Domestic Product) growth rate was 13.1 per cent during April-June quarter 2022-23 and 6.1 per cent during January-March quarter of previous fiscal (FY23)  

“There is momentum in economic activity in general and it is not driven by price-related distortions. Therefore, our projections still are very comfortably placed at 6.5 per cent for the current financial year,” Chief Economic Advisor V Anantha Nageswaran said in a media briefing.

Concern over inflation

He also said that there is no real cause for concern that inflation would spike out of control as both the government and the Reserve Bank are taking adequate steps to maintain supply and keep prices under check.

Commenting on latest data, DK Srivastava, Chief Policy Advisor with EY India, said the proximity of real GDP growth at 7.8 per cent with nominal GDP growth at only 8 per cent has significant fiscal implications. These growth rates imply that the implicit price deflator (IPD) based inflation is only 0.2 per cent. Such a low IPD inflation is seen after 15 quarters. “With a low nominal GDP growth, tax revenue growth is expected to be muted,” he said.

Now, with monsoon estimated to be below normal coupled with strong geopolitical headwinds, experts feel that overall growth in coming quarters will be affected.

Dharmakirti Joshi, Chief Economist, with Crisil, felt that growth in the July-September quarter will be moderated by softening consumption as spiking inflation will dent discretionary-spending power.

Global headwinds

“For the rest of the year, headwinds from slowing global growth and the lagged impact of interest rate hikes will play out. Additionally, if dry weather conditions seen in August continue in September, agricultural output could be impacted,” he said while maintaining full year forecast at 6 per cent.

 Rajni Sinha, Chief Economist, CARE, said that frontloading of government capital expenditure has supported investment demand so far. However, amid evolving conditions, private capex will have to match up the pace to sustain growth momentum. “We maintain our FY24 GDP growth forecast at 6.5 per cent with risks titled to the downside,” she said. 

Sunil K Sinha (Principal Economist) and Paras Jasrai (Senior Analyst) with India Ratings & Research feared that the impact of El Nino on this year’s monsoon could bring agricultural growth under pressure and the spillover effect of this would be felt on food inflation. A government intervention in agriculture and drought relief measures can destabilise the fiscal arithmetic of FY24. Amidst these challenges, however, “revival private corporate capex is expected to bring relief to the economy,” they said in a note.