GDP Growth Analysis: CEA Nageswaran Discusses India’s Economic Performance

GDP Growth Factors: Elections and Capital Expenditure

Chief Economic Advisor (CEA) V Anantha Nageswaran has attributed India’s moderate GDP growth to the upcoming Lok Sabha elections and subdued capital spending by the government. He noted that despite these pressures, the economy shows strong momentum in Q1FY25.

Recent GDP Data

The country’s GDP grew by 6.7 percent in the April-June quarter, decreasing from 8.2 percent a year ago, marking the slowest growth in five quarters. This information was released by the statistics ministry on August 30.

Demand Side Dynamics

• The demand side has reportedly grown faster than GDP due to investment demand and positive business sentiments.
• However, the share of Gross Fixed Capital Formation (GFCE) has decreased.

Impact of Elections

Nageswaran anticipates a slight slowdown due to limited capex and overall government spending influenced by the elections. He highlighted that both the services and manufacturing sectors have performed well.

Inflation Trends

Addressing inflation, the CEA noted a decline, particularly in food inflation, with no significant spillover effects on core inflation. Despite some monsoon deficits affecting agriculture, recovery is expected in upcoming quarters.

Sector Performance

• Agriculture: Reported growth of 2% in April-June FY25, down from 3.7%.
• Manufacturing: Growth uptick to 7% compared to 5% last year.

RBI's Growth Estimations

The Reserve Bank of India (RBI) has revised its growth estimates for the April-June quarter downward by 20 basis points to 7.1%. This adjustment is attributed to limited government capex, lower corporate profitability, and reduced core output. Nevertheless, the RBI maintains its full-year FY25 GDP growth estimate at 7.2%.