There is no doubt that the headline number for economic growth in the first quarter has come in lower than expected. There are two reasons why we need to look beyond the setback. First, the sharp rise in subsidy payouts compared to the year-ago period has reduced the growth in gross domestic product. The growth in gross value added—a better gauge of private sector activity—is more or less stable. Second, it seems quite likely that economic growth in the remaining three quarters will strengthen enough to keep the annual number on track. It is thus too early to say that India is losing economic momentum.
There are problems, however. Gross fixed capital formation has declined for the second quarter in a row compared to a year ago. A lot will continue to depend on consumer spending in the months ahead. But to reiterate an old point: The Indian economy needs a revival in private sector investment if economic growth is to be sustainable.