Govt spending may power recovery from growth lull

Boost from the festival season and resilient rural consumption are also likely to support growth in H2

- Rhik Kundu & Subhash Narayan

After two consecutive quarters of sluggish economic growth, policymakers and economists are banking on a turnaround in the second half of the fiscal year, driven by increased government spending, a boost from the ongoing festive season, and resilient rural consumption.

These drivers are anticipated to counterbalance the downturn in manufacturing, subdued urban consumption, and lackluster corporate earnings-factors that led to the moderation of India's GDP growth to 5.4% in the September quarter, from 6.7% in the June quarter and 8.2% in the year-ago period.

Economists note that while India is expected to retain its status as the fastest-growing major economy over the next five years, a growth rate of 5.4%-even if the highest among large economies in a sluggish global environment-should not invite complacency, as restoring India's economy to its pre-pandemic trajectory remains vital, particularly for the millions in the economically weaker sections of the society.

Despite ranking among the world's top five economies, India grapples with the lowest per capita income in this group, and stark regional disparities persist, said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.

"Per capita income in India's more developed western and southern states is 2.2 times that of the weaker eastern states," he said.

"Without translating economic growth into inclusive development, particularly for underserved regions, India's long-term economic ambitions will face significant headwinds," he added.

During the September quarter, an industrial slowdown-driven by weak government capex, sluggish bank credit, and falling global demand-hit sectors with mass employment like mining, manufacturing, and construction, dampening consumption, which drives 60% of India's GDP.

Meanwhile, agriculture, a pandemic-era growth driver employing over 40% of the workforce, remains overly reliant on good monsoons, exposing it to climate risks.