Government spending to drive India’s economic growth this fiscal year, suggests poll
Government spending will be the primary driver of India's economic growth this fiscal year, according to a Reuters poll of economists.
The Indian economy is expected to experience robust growth of 6.1% this fiscal year, largely driven by strong government spending, according to a Reuters poll of economists,. However, the poll also highlighted that consumption and exports will act as significant obstacles to growth.
Consumer spending, which accounts for 60% of India's economy, has noticeably slowed down in recent times, failing to provide the support it once did. This has shifted the responsibility to the government to sustain strong economic growth through extensive capital expenditure (capex) plans, as private investment has remained sluggish.
Nearly 60% of economists, 19 out of 33 surveyed expressed the view that government spending would be the primary driver of economic growth in the fiscal year ending in March, while 12 economists believed that investment would play a pivotal role. However many of those who said investment emphasised that a substantial portion of growth would be attributed to the government's capex initiatives, as private investment has not yet exhibited significant momentum.
Principal economist at HDFC Bank, Sakshi Gupta said, “we clearly know exports are not going to be the primary driver, and when we look at consumption, we are beginning to get a sense it is going to slow down. So, then we're left with the heavy lifting by the government – doing capex.” She added that the private sector's involvement in the investment push may remain limited, indicating a continued trend of modest private capex.
The median forecast from the survey projected a 6.1% growth rate for the Indian economy this fiscal year, although the challenging global economic outlook suggests potential downgrades in the coming months. Forecasts ranged from 3.7% to 6.9%. Next fiscal year, the economy is expected to grow by 6.2%.
Respondents predicted growth rates of 7.3%, 6.2%, and 6.0% for the current and subsequent quarters, followed by a slowdown to 5.5% in the March quarter of 2024.
The private consumption cycle, which was already lagging before the COVID-19 pandemic, saw a meager growth rate of 2.8% in the fourth quarter.
When asked about the biggest factors hindering economic growth this fiscal year, 14 economists cited exports, while 13 pointed to consumption. Three economists mentioned investment, one mentioned government spending, and two stated that none of these factors would be significant drags.
"Services exports (are) doing well, but in manufacturing, there is a slowdown. Petroleum, textiles, and two-wheeler exports have come down, and it's very unlikely they will reverse that in a big way," said Suman Chowdhury, chief economist at Acuité Ratings. Despite some positive developments in electronic exports driven by local manufacturing by companies like Apple and Samsung, the overall export scenario is anticipated to remain subdued until global conditions improve.
According to some participants, the downtrend was likely to extend to consumer spending as well.
"Weak consumption is a concern...the rural economy wasn't doing very well. It's still recovering, and all of it totally adds up to a view consumption will remain an underperformer this year,"said Dhiraj Nim ANZ economist.
Also read: ‘Bright spot in global economy’: India's GDP has touched $3.75 trillion-mark in 2023, says Nirmala Sitharaman
(With inputs from Reuters)
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First Published:23 Jun 2023, 09:53 AM IST
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