Lower government spending ‘slows India’s GDP growth’
The slowdown of India’s economic growth has been attributed to lower government spending because of the spending moratorium in the build-up to the country’s recent elections.
India’s gross domestic product (GDP) slowed to a 15-month low of 6.7% in April-June quarter of this fiscal period against 8.2% in the year-ago period, according to official data.
In a statement Reserve Bank of India (RBI) Governor Shaktikanta Das said the central bank had projected a growth rate of 7.1% for the April-June quarter of this fiscal.
“The Reserve Bank projected a growth rate of 7.1% for the first quarter. However, the first advance estimation data released by the National Statistical Office (NSO) showed the growth rate at 6.7%,” Das said.
The previous low GDP was recorded at 6.2% in January-March 2023.
The governor added that the main drivers for GDP growth, including domestic consumption, investment, manufacturing, services and construction have registered a growth of more than 7%, he said.
Only two factors have slowed the growth rate slightly down – both central and state expenditure and agriculture, Das pointed out.
He said the government expenditure was low during the first quarter perhaps due to elections (April to June) and operation of ‘model code of conduct’ by the Election Commission.
“We would expect the government expenditure to pick up in coming quarters and provide the required support to growth,” Das said.
Similarly, the agriculture sector has recorded a minimal growth rate of around 2% in the April to June quarter, he noted.
“Under these circumstances, we have reasonably confident expectations that the annual growth rate of 7.2% projected by the RBI will be materialised in coming quarters,” the governor added.
India remains the fastest-growing major economy, with China’s GDP growth in the April-June quarter recorded at 4.7%.
Chief Economic Advisor (CEA) V Anantha Nageswaran agreed that India’s moderate GDP growth was due to the elections and subdued capital spending by the government. However, he added that the growth momentum is strong for Q1FY25.
Credit to industry sees a sharp rise
The amount of funding lent to industry rose sharply to 10.2% year-on-year in July 2024, up from 4.6% in July 2023, Reserve Bank of India (RBI) data shows.
The pace of loans to large industries increased to 8.5 year-on-year in July 2024, from 3.5% in the same month is 2023.
The medium-sized segment showed a 17.2% year-on-year growth as against 9.8%. The micro and small segment saw credit growth rising to 13.3% year-on-year in July 2024, up from 9.9%.
RBI in a statement said among major industries, year-on-year growth in credit to chemicals, food processing, and infrastructure was higher in July 2024. However, credit growth in basic metal and metal products and textiles moderated, it said.
Retail loan growth moderated to 17.8% year-on-year in July 2024, down from 18.4% a year ago.
The growth in the other personal loan category, which consists mainly of unsecured credit, fell sharply to 14.5% year-on-year in July 2024, from 25% in July 2023, RBI data showed.
Credit growth to the services sector was recorded at 15.4% year-on-year in July 2024, compared with 19.7% a year ago, primarily driven down by lower credit growth in non-banking financial companies (NBFCs) and trade segments.
The credit to NBFCs grew by 12.7% year-on-year in July 2024, down from 19.9% a year ago. Credit to trade declined to 15.2% year-on-year, from 18.1% in July 2023. Credit flow in commercial real estate; tourism, hotels and restaurants, and computer software, accelerated during July 2024.
The loan growth in agriculture and allied activities remained robust at 18.1% year-on-year in July 2024, compared with 16.7% in July 2023, the central bank added.
