Finance Minister Nirmala Sitharaman said on Friday that the growth in the second quarter of the current financial year was not systemic, but due to the lack of public investment in the first quarter, the administration was busy with the general election. Third-quarter gross domestic product (GDP) growth numbers will make up for the deficit in Q2, she said.
This is the finance minister’s first statement on growth after indicators pointed to lower-than-expected GDP growth and a slowdown in urban consumption in the second quarter. After gross domestic product (GDP) grew by 5.4 percent in July-September, the slowest in seven quarters, some analysts fear that growth for the fiscal year could fall below 6.5 percent. H1FY25 growth came in at 6%, much lower than most projections.
On Friday, the Reserve Bank of India (RBI) cut its GDP growth forecast to 6.6% from 7.2%. The central bank has predicted an increase of 6.8 percent and 7.2 percent in the third and fourth quarters of the financial year 2075. The Economic Survey had projected economic growth of 6.5 to 7 percent in the current financial year.
“This (slow GDP growth in Q2) is not a systemic slowdown. There is lack of more activity in public spending, capital spending etc. So, I expect quarter three to make up for all of this,” Sitharaman said at the India Japan Forum 2024.
Growth numbers are something that are not going to be affected badly this year, she said, adding that India is likely to be the fastest growing major economy for the next few years. Sitharaman, however, drew attention to several challenges ahead for India, including the impact of wage saturation on consumption, plateauing global demand and climate impacts on agriculture.
“For us, if there is a plateau in demand globally, especially in developed countries, it is a matter of concern,” she said, adding, “India exports not only commodities, but also engineering goods, processed goods and high precision goods. Intensive goods like garments and footwear Traditional sectors in which India has strength, such as labour-intensive goods, are also facing challenges due to weak global demand. The purchasing power of Indians is improving, but within India, there is concern that wages will be saturated We are very much caught up by these factors,” she said.
Elaborating on the slowdown in Q2FY25 GDP growth, Sitharaman said that both the state and central administrations gave more time to get through the electoral process. Public expenditure related activities related to natural governance were put on the back burner. As a result, which should have been a catalyst to trigger better consumption, higher demand for core products and so on, slowed down, which was reflected in the Q2 growth numbers. On the other hand, Q4FY24 spending was very high, which lifted the Q1FY25 GDP numbers (6.7%) despite the election, he added.
On Thursday, Chief Economic Adviser CEA V Anantha Nageswaran highlighted some of the factors coming in the way of higher economic growth, including the “creeping informality” of the workforce that is “far from favorable” and “under pressure” globally. “On consumption. He also called for a “highly profitable” corporate India to invest and create jobs.