Economic growth in India is anticipated to have moderated in the September quarter, with a forecasted GDP growth of 6.8%, down from the previous quarter’s 7.8%, as indicated by a Reuters poll of economists. Despite a global slowdown affecting export growth, the robust service activity and solid urban demand are seen as key support factors. Forecasts for the upcoming years suggest India’s economy will grow more than 6.0%, outpacing major economies. Consumer demand, contributing 60% to GDP growth, remained strong, particularly among urban dwellers, despite inflation triggered by an erratic monsoon.
Analysts expect resilience in headline growth, citing robust growth in utilities, services, and construction. While forecasts for India’s GDP growth average 6.4% for the fiscal year ending March 31, the country is projected to sustain growth at 6.3% in the following year, primarily driven by increased government capital expenditure. India’s capital expenditure in the first half of the fiscal year reached 4.91 trillion Indian rupees, and economists predict further increases leading up to the May 2024 national election.
When asked about the primary driver of economic growth, economists were divided between government spending and consumption. Consumer demand, while strong in urban areas, faced a dip in rural areas due to increased prices. However, economists anticipate a short-lived weakness in rural demand, with 69% predicting a narrowing gap between rural and urban consumption over the next two to three years. An improvement in purchasing power is expected to support rural consumption as core inflation moderates, according to Upasana Chachra, Chief India Economist at Morgan Stanley.
