India's Growth Test — Can The Economy Sustain Its Momentum Amid Global Triggers?

Indian economic growth slowed slightly to 7.1% in the April-June quarter, according to most economists, on more subdued private investment, though supported by consumer spending and government expenditure. The GST rate cuts announced last year and income tax reductions likely continued to support household disposable income and demand, helping cushion the impact of rising inflation. However, economists expect the recent pickup in private investment to be temporary.

Speaking at the NDTV Emerging Markets Conclave on Monday, Aug. 31, Aastha Gudwani, India Chief Economist, Barclays, and Rishi Shah, Economic Advisory Services Leader, Grant Thornton Bharat LLP, decoded the road ahead for the domestic economy. Both experts highlighted the resilience of the economy amid the current geopolitical conflict while also stressing the difficulties being seen in the supply chain managment and consumption rate in the last six months of the Iran war.

ALSO READ: India-US Trade Deal: Commerce Ministry To Meet Exporters; CII, FICCI, Assocham Likely To Participate

Speaking on India's growth outlook, Gudwani said she was "amazed" by the resilience of the Indian economy, particularly given the range of challenges it has faced. "We must keep in mind how resilient it has been in an unpredictable environment," Gudwani said. She added that the geopolitical situation currently confronting the global economy was not something that could have been anticipated. "In this kind of environment, to sustain growth rates is no mean feat," she said.

India GDP Growth Outlook

Gudwani expects India's gross value added, or GVA, growth for the April-June quarter to come in at around 7.7%. While that would represent a strong pace of expansion, it would be marginally slower than the 7.9% GVA growth recorded in the January-March quarter. The economist cautioned against expecting India, given the size and complexity of its economy, to sustain growth through a handful of sectors alone.

"We cannot expect an economy of this size to grow at rates which are concentrated in certain sectors," she said, drawing a comparison with economies such as Taiwan, where growth can be more concentrated in specific sectors. According to Gudwani, one of the key factors supporting India's growth has been the heavy lifting by public capital expenditure.

She said the strength of government-led capital spending has been an important pillar of the current growth story, even as the economy awaits a broader revival in private investment. "What's working out well is phenomenal heavy lifting by public capex," Gudwani said. The next important piece of the growth puzzle, she added, is for private investment to pick up.

ALSO READ: Semicon 2.0: High-Level Govt Panel To Handpick Strategic Chips For Incentives, Says Vaishnaw

Cyclical Slowdown Or Normalisation?

Despite the moderation expected in growth, Gudwani did not view the current trajectory as either a conventional cyclical slowdown or a cause for concern. Her comments come against the backdrop of an Indian economy that has continued to expand at a relatively strong pace despite geopolitical uncertainty, uneven global growth and changing financial conditions.

The challenge is less about the headline growth rate and more about ensuring that the expansion becomes broad-based and sustainable, with private investment increasingly complementing public expenditure. Rishi Shah of Grant Thornton Bharat LLP, also struck a positive note on India's economic performance. "We're going through a very tough test, but we're doing very well at it," Shah said.

He added that India remains in "a good position to be in", despite the challenging external environment. According to the experts, the sustainability of that momentum, however, will increasingly depend on whether growth broadens beyond the sectors currently driving expansion and whether private investment begins to take over a larger share of the investment cycle.

Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.