The Indian economy is set to achieve a remarkable growth rate of 6.1% in the current fiscal year, primarily driven by substantial government spending, as per a recent Reuters poll conducted among economists. However, the survey also emphasizes that consumption and exports may pose significant challenges to this growth.
Government Spending: A Strong Pillar- With consumer spending accounting for 60% of India's economy, the noticeable slowdown in recent times has necessitated increased reliance on government initiatives to sustain economic growth. The private sector's investment has remained sluggish, thereby placing the responsibility on the government to propel growth through extensive capital expenditure (capex) plans.
Economist Survey Results: Out of the 33 economists surveyed, nearly 60% (19 economists) believe that government spending will be the primary driver of economic growth in the fiscal year ending in March. Conversely, 12 economists consider investment to play a pivotal role. Nevertheless, those emphasizing investment have also highlighted that a substantial portion of growth would still be attributed to the government's capex initiatives, given the lack of significant momentum in private investment.
Expert Insights: Sakshi Gupta, the Principal Economist at HDFC Bank, commented on the situation, stating, "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 further suggested that the private sector's involvement in the investment push may remain limited, indicating a continued trend of modest private capex.
Growth Outlook: The median forecast from the survey projects a 6.1% growth rate for the Indian economy in the current fiscal year. However, given the challenging global economic outlook, potential downgrades are anticipated in the coming months. The forecasted growth rates range from 3.7% to 6.9%. Looking ahead to the next fiscal year, a growth rate of 6.2% is expected.
Quarter-wise Growth Predictions: Respondents in the survey predicted growth rates of 7.3%, 6.2%, and 6.0% for the current and subsequent quarters. However, a slowdown to 5.5% is projected for the March quarter of 2024.
Factors Hindering Economic Growth: When economists were asked about the biggest factors hindering economic growth this fiscal year, 14 of them cited exports, while 13 pointed to consumption. Three economists mentioned investment, one mentioned government spending, and two stated that none of these factors would significantly drag down the growth.
Suman Chowdhury, the Chief Economist at Acuité Ratings, highlighted the slowdown in manufacturing and specific export sectors. He mentioned, "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." Despite some positive developments in electronic exports due to local manufacturing by companies like Apple and Samsung, the overall export scenario is expected to remain subdued until global conditions improve.
According to some participants, the downtrend is likely to extend to consumer spending as well. Dhiraj Nim, an economist at ANZ, expressed his concern by saying, "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."
The Indian economy is poised to experience robust growth of 6.1% this fiscal year, largely propelled by government spending. However, challenges lie ahead due to the slowdown in consumer spending and exports. It remains crucial for the government to continue its capex initiatives and drive economic growth while awaiting improvements in the global economic landscape.
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