By Vivek Mishra
BENGALURU (Reuters) – The Indian economy will grow a robust 6.1% this fiscal year fueled mainly by strong government spending, according to a Reuters poll of economists who also said consumption and exports will be the biggest drag.
Consumer spending, which makes up 60% of Asia’s third-largest economy, has slowed markedly recently, not providing the support it once did.
Weakness in consumption has shifted the onus onto the government to maintain strong economic growth by announcing record capital expenditure (capex) plans, given private investment has lagged.
Nearly 60% of economists, 19 of 33, in the June 15-22 Reuters poll said government spending will be the primary driver of economic growth this fiscal year to end-March, while 12 said investment would play a pivotal role.
But many of those who said investment, added a chunk of growth will be due to the government’s capex push, with private investment yet to take off meaningfully.
“We clearly know exports are not going to be the primary driver, and when we look at consumption, we are beginning to get a sense it is going to slow down. So, then we’re left with the heavy lifting by the government – doing capex,” said Sakshi Gupta, principal economist at HDFC Bank.
“That will push up investment in the economy, but I don’t think we will see a large or enhanced role of the private sector in the investment push just yet. That story of a rather patchy and timid private capex trend should continue this year.”
The survey median showed the Indian economy would grow 6.1% this fiscal year, but a challenging global economic outlook suggests there may be downgrades in coming months. Forecasts ranged from 3.7% to 6.9%.
It was forecast to grow 6.2% next fiscal year. This quarter it was expected to grow 7.3%, followed by 6.2% and 6.0% in the next two quarters before slowing to 5.5% in the March quarter of 2024.
When asked what will be the biggest drag on economic growth this fiscal year, 14 said exports and 13 said consumption. Of the others, three said investment, one said government spending, while two said none.
“Services exports (are) doing well, but in manufacturing, there is a slowdown. Petroleum, textiles, and two-wheeler exports have come down, and it’s very unlikely they will reverse that in a big way,” said Suman Chowdhury, chief economist at Acuité Ratings.
“Apple, through their partner, is manufacturing locally and exporting. Samsung is also doing the same, which is resulting in electronic exports increasing, but that’s not going to be enough. We will continue to see a slowdown in exports until the global scenario improves.”
Some participants said the downtrend was likely to extend to consumer spending as well.
ANZ economist Dhiraj Nim said weak consumption is “a concern…the rural economy wasn’t doing very well. It’s still recovering, and all of it totally adds up to a view consumption will remain an underperformer this year.”
India’s private consumption cycle – which had been a laggard even before the onset of the COVID pandemic – grew a mere 2.8% in the fourth quarter.
(For other stories from the Reuters global economic poll:)
(Reporting by Vivek Mishra; Analysis by Devayani Sathyan and Madhumita Gokhale; Polling by Anant Chandak and Veronica Khongwir; Editing by Ross Finley and Sharon Singleton)
