India’s economy is expected to expand at its fastest rate in a year: Estimates

India’s economy expanded at its quickest rate in a year in the April-June quarter, data is expected to indicate on Thursday. Meanwhile, economists foresee a slowdown.

The median projection of economists surveyed by Reuters indicates that India’s gross domestic product (GDP) expanded 7.7 per cent in the most recent quarter, which is faster growth than the country experienced in the April to June quarter in 2022.

According to economists, falling commodity costs have allowed for manufacturers to raise profits and somewhat offset the 250-basis point increase in interest rates since May 2022.

India, being the third-largest economy in Asia, has been able to defy the global downturn that has left several other economies, including China, faltering. India’s services sector, which accounts for more than half of its economic output, has had strong growth.

For the longest period since August 2011, the S&P Global India services Purchasing Managers’ Index has been consistently over the 50-point threshold distinguishing growth from contraction for almost two years.

The Indian government has been putting more money toward infrastructure each year to stimulate growth. India spent roughly 28 per cent of its 10 trillion Indian rupee ($120.91 billion) capital expenditure budget in the first three months of the fiscal year, which began on April 1.

Kaushik Das, chief economist for India at Deutsche Bank, said that a 3 per cent drop in wholesale prices will also boost the nation's strong headline growth by lowering the “GDP deflator,” which is used to estimate real economic growth by excluding price increases.

Setbacks ahead

According to economists, the price effect may change in the upcoming months, and growth may slow.

August has been unusually dry after above average rainfall in July, which has driven up the cost of basic foods and reduced discretionary expenditure.

In India’s hinterlands, where agriculture provides the majority of the country’s income, dry weather could also reduce agricultural productivity and weaken the influence of the locals.

A comparison to higher growth rates from a year ago as well as slowing exports and global growth will also have an impact on future quarters’ growth.

Rahul Bajoria, an economist at Barclays, stated that there is some evidence that the activity is decreasing sequentially. “The market as a whole believes that things will slow down.”

(With inputs from Reuters)

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