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The Indian economy experienced a slight slowdown in the April-June quarter of FY25, with growth registering at 6.7 percent compared to 8.2 percent in Q1 of FY2023-24. This deceleration, however, was anticipated by experts due to the impact of elections and subsequent reduced spending. Despite the slowdown, the growth momentum remains strong, driven by strong corporate and bank balance sheets. The government has reiterated its commitment to reducing the fiscal deficit, aiming for 4.5 percent by FY26.
The Chief Economic Advisor (CEA), V Anantha Nageswaran, attributed the slowdown to factors such as elections and the resulting decline in government spending. He also highlighted that the final consumption expenditure and net exports have held up, while the growth rate in agriculture and livestock is bottoming out. On the supply side, manufacturing remains in expansionary mode, with double-digit growth visible in steel consumption. The services sector is exhibiting upbeat sentiment, and robust digital transactions are also contributing to economic activity. The banking sector remains healthy with low non-performing assets (NPAs), and urban employment indicators have shown improvement with a decline in the quarterly urban unemployment rate.
Addressing inflation, the CEA stated that food inflation in July has dropped significantly, and the core inflation rate has not shown any spillover from food inflation. The government's near-term outlook acknowledges potential corrections in financial markets, which could impact household finances and corporate valuations. Furthermore, election outcomes across the world could have implications for global trade and investments. The Reserve Bank of India (RBI) revised its growth forecast for the April-June quarter downwards by 20 basis points to 7.1 percent, citing muted government capital expenditure, lower corporate profitability, and lower core output. However, the central bank maintained its full-year FY25 GDP growth estimates at 7.2 percent.
The government's focus on agri, employment, and skilling is crucial for sustained economic growth and development. The CEA's positive outlook for the Indian economy is based on the strong fundamentals and the government's commitment to fiscal discipline. While short-term challenges remain, the long-term prospects for the Indian economy remain bright, fueled by the country's robust growth potential and structural reforms.
Source: Slight slowdown in economy was anticipated due to elections and less spending: CEA Nageswaran