Growth goals in uncertain times

The recovery of the Indian economy to a 6.2 per cent growth in the third quarter of FY25, from the revised estimate of 5.6 per cent in the previous quarter, was not entirely unexpected. Several indicators had pointed to an improvement from the lows the economy had reached, and the data released by the National Statistics Office (NSO) last week are therefore welcome. The recovery would take growth for the year so far to 6.1 per cent. The NSO has also revised upwards its estimates for full-year growth to 6.5 per cent from its earlier estimate of 6.4 per cent. The revised estimates for last year’s growth show the economy to have grown at 9.2 per cent in 2023-24. But overall, there has been a deceleration in the recent quarters. The 6.2 per cent growth rate also shows that the 6.5 per cent target for the full year is unlikely to be met because to achieve that, the asking growth rate in the fourth quarter will have to be a high 7.6 per cent.

The primary sector, including agriculture, has shown good performance, growing from 1.8 per cent in the same quarter last year to 5.2 per cent. But manufacturing and services sectors showed a decline from 12.4 per cent and 8.3 per cent last year to 4.8 per cent and 7.4 per cent, respectively. These sectors may continue to show weakness because of global uncertainties resulting from the tariff war unleashed by US President Donald Trump. A good part of India’s exports may be affected by the emerging global trade scenario.

The improved performance in the third quarter is mainly the result of higher government spending and growth in private consumption expenditure. These are good auguries. Inflation is expected to moderate to 4.8 per cent in the current financial year. But there is the risk of imported inflation created by trade issues. There is a recovery in the labour market as well. It remains to be seen if all this will sustain. Government investment may not continue at the same level, especially because the populist spending of states may constrain investment spending. The boost from the changes in income tax slabs is uncertain, and in any case, that may be for the medium term. The impact of the increase in consumption during the Kumbh Mela is also unknown as of now. Private corporate investment is diffident mainly because corporates are not ready to make large investments for many reasons including global uncertainties. The overall situation is, therefore, touched by uncertainties both on the domestic and global fronts. India will remain the fastest growing major economy but may take some hits and suffer setbacks.