IGI Logo

 India's economic growth likely moderated to 6.6% year-on-year in the October to December quarter as robust government spending slowed and growth in the agriculture sector remained muted, a Reuters poll showed.

Strong capital expenditure by the Indian government ahead of a national election due in May was a primary driver of growth in the previous few quarters.

Manufacturing, which contributes around 17% to the country's gross domestic product (GDP), grew at its fastest pace in the July to September quarter since early in the 2021/22 fiscal year, and growth in capital formation, an indicator of investment, picked up to 11% year-on-year.

Asia's third-largest economy grew 7.8% and 7.6% on an annual basis in the first two quarters of the current fiscal year that ends in March.

But momentum likely slowed last quarter, as none of the 63 economists surveyed from Feb. 16-26 expected similar growth rates in the October to December quarter. Forecasts ranged from 5.6% to 7.4%.

Official GDP growth releases for the preceding three quarters have broadly surpassed economists' predictions.

"The slowing is predicated both on softer agricultural production and government spending," said Sajjid Chinoy, chief India economist at JPMorgan.

"Government spending was heavily front-loaded this year and is slowing to meet budgeted targets... It remains to be seen how agricultural GDP is impacted by the patchy and uneven monsoon."

The monsoon accounts for about 75% of India's annual rainfall and is the lifeblood of its agriculture-dependent economy.

In contrast to 12.4% growth in government spending in the July to September period, growth in farm output, which contributes about 15% of GDP and employs more than 40% of the workforce, slowed to 1.2% in the second quarter of this fiscal year, the weakest since fiscal 2018/19.

Although the latest government survey estimated rural consumer spending to have more than doubled since 2011-12, large parts of the population living in rural areas face stagnant incomes and high inflation.

Growth in the broader economy was forecast to slow further to 6.1% this quarter. The economy will grow 7.0% this fiscal year - lower than the government estimate of 7.3% - and 6.5% next, a small upgrade from 6.9% and 6.3% in a January poll.

Still, a strong majority - 32 of 38 economists who answered a separate question - said private investment would perform better or stay the same relative to government capital expenditure next fiscal year.

"While a moderation is expected in government capital expenditure in FY25, at least in the first two quarters of the fiscal year, private investments are likely to pick up. But the pace of pickup may be gradual," said Suman Chowdhury, chief economist at Acuite Ratings and Research.

Meanwhile, consumer price inflation, currently 5.1%, was seen averaging 5.4% and 4.6% this fiscal year and next, broadly unchanged from last month.

Growth remaining strong and inflation within the Reserve Bank of India's 2%-6% target range means the central bank can wait on the sidelines for a few months.

The RBI will hold its repo rate at 6.5% until at least July, the poll showed.