A GDP20 kind of promising Q1 growth

The economy grew 7.8% in the April-June quarter, the highest among G20 nations, leaders of which will gather next week for the New Delhi summit. India has underscored its rotating presidency by sustaining its post-pandemic recovery. India’s outperformance is expected to continue as domestic demand recovers while international trade languishes, exerting pressure on the growth rates of export-driven emerging markets. This will enhance India’s contribution to world economic growth until manufacturing trade revives, allowing the country to raise its share as global supply chains build resilience.

GDP growth in Q1 fell marginally short of the 8% projection by RBI. But this is likely to remain on course to meet the 6.5% target for 2023-24. Private consumption grew slower than the economy, and government consumption declined. Investment grew on trend with the economy. Net exports widened as exports shrank and imports grew above trend. Sectorally, agriculture and services accelerated as manufacturing, mining, utilities and construction slowed down from a year ago. These movements need to be read with the caveat of a normalising base effect.

The economy is pushing ahead on government-led capex and credit-driven consumption. Growth would have been subdued without either of these stimuli. Revival of private investment could push up credit costs, affecting consumption demand. Episodic flare-ups in inflation also exert pressure on interest rates. Tapering government capex, an uneven monsoon and commodity prices coming off their high base weigh on downside risks to growth in subsequent quarters. Improving profitability and capacity utilisation hastens a revival of private investment, providing upside to full-year growth projections.