Article 3: Growth holds up for now. Inflation clouds outlook
Why in news: Major global agencies have raised their India growth forecasts after stronger-than-expected GDP performance. However, economists expect some moderation ahead due to fading policy support, global risks and agricultural uncertainties.
Key Details
- Growth projections: The ADB and S&P Global estimate 7% growth, while the OECD has raised its forecast to 7.1%.
- Industrial momentum: IIP grew 6.3% during April–July, while manufacturing expanded by 7%, indicating continued industrial strength.
- Public investment: Government capital expenditure increased nearly 30% during April–July, supporting infrastructure and economic activity.
- Export performance: Merchandise exports rose 17.8% during April–August, providing another source of growth momentum.
- Risks ahead: Growth could slow as the impact of tax measures weakens, while an adverse El Niño could reduce farm output and increase food inflation.
Upward Revision in Growth Forecasts
- Stronger-than-expected first-quarter GDP growth has led global agencies to raise India’s full-year growth estimates.
- ADB and S&P Global now project 7% growth.
- The OECD has raised its forecast from 6.3% to 7.1%, while Moody’s has increased it from 6% to 7%.
Investment and Industrial Growth
- Industrial activity and investment are key drivers of the current growth momentum.
- IIP grew by 6.3% during April–July, while manufacturing grew by 7%.
- Government capital expenditure increased by nearly 30%, providing support to economic activity.
Strong Export Performance
- Merchandise exports grew by 17.8% during April–August.
- A weaker currency may have supported export growth by improving price competitiveness.
- Growth has remained strong despite concerns over the impact of the West Asia conflict on economic activity.
Expected Moderation in Growth
- Economic growth is expected to slow in the second half of the financial year.
- According to S&P Global, the boost from GST rationalisation and income-tax cuts is likely to weaken.
- The OECD also expects growth momentum to decline before a gradual recovery in 2027.
Agriculture and Inflation Risks
- The agricultural sector has emerged as an important risk to the growth outlook.
- A stronger-than-expected El Niño could reduce agricultural production.
- Lower farm output could increase food inflation and put pressure on overall economic growth.
Conclusion
India’s recent growth reflects the combined contribution of public investment, industrial activity, exports and domestic demand. However, sustaining this momentum requires stronger private investment, productive employment and resilient agriculture. External conflicts, food inflation and climate-related shocks can create volatility. India must therefore consolidate current gains through structural reforms, fiscal prudence and greater economic diversification for durable growth.
Descriptive question:
India’s growth outlook remains strong despite emerging domestic and global risks. Examine the key drivers of growth and the factors that could affect its sustainability.
Source: The Indian Express