Home / News / India /  After fastest growth in Q1, what next for the Indian economy?

Indian economy probably achieved its fastest annual expansion in a year in the April-June quarter, said economists as quoted by news agency Reuters. They also expect the pace to sharply slow this quarter and in the next two as higher interest rates hit economic activity.

In the past three months till June 30, India's Gross Domestic Product (GDP) was probably 15.2% higher than a year earlier, according to Reuters polls this week. A year before, India's GDP from January to March was up by 4.1%.

Last time, India's GDP grew by 20.1% in April-June 2021, higher than the pandemic-depressed level of a year before. Forecasts for this quarter ranged from 9.0% to 21.5%. The official release is due at 1200 GMT on Wednesday, as per Reuters reports.

Meanwhile, the Reserve Bank of India (RBI) has increased its benchmark repo rate by 140 basis points since May, including 50 basis points this month. The central bank also warned about the impact of a global slowdown on domestic growth prospects.

According to the latest Reuters poll, the economists expected that the growth of the Indian economy in this quarter could slow sharply to an annual 6.2% before decelerating further to 4.5% in October-December.

Several economists are also expecting another rate hike of about 50 basis points next month, followed by one more of 25 basis points thereafter.

The agency stated that consumer spending has been hit hard following a rise in food and fuel prices, though monthly inflation has moderated in the past three months. Consumer spending accounts for nearly 55% of economic activity.

Shilan Shah, Indian economist at Capital Economics, Singapore noted that resilience has continued in Q3 (July-September) too, while the economy had better resisted the impact of the Omicron wave of Covid-19 in January-March than it had coped with the previous wave of the pandemic.

However, the Indian economy faces downward risks because companies' investment plans could be impacted by tighter monetary conditions and higher input costs, Shah wrote in a note to clients last week.

This year, a depreciation in the rupee of more than 7% against the dollar has made imported items costlier for consumers and businesses.


(With inputs from Reuters)




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