1. India to retain top economy title as government spending stays strong

India to retain top economy title as government spending stays strong

blog author image

Upstox

blog verification badge

3 min read • Updated: January 24, 2024, 9:02 AM

Facebook PageTwitter PageLinkedin Page

Summary

Indian economy performed better than expected in the first two quarters of FY24, as the government steps up already-strong spending to bolster growth momentum ahead of general election.

statistics-3335680_1280.jpg
India to retain title of fastest growing economy

BENGALURU, Jan 24 (Reuters) - India will remain the fastest-growing major economy this year and next, boosted by continued strong government spending, according to a Reuters poll of economists who also said inflation was unlikely to surge again.

The world's most populous country performed better than expected in the first two quarters of this fiscal year to end-March, as the government steps up already-strong spending to bolster growth momentum running into a national election due in May.

Much of Prime Minister Narendra Modi's government spending in recent years has gone into building infrastructure. Private investment and job creation have lagged, suggesting New Delhi will continue to play an outsized role in India's economic growth.

The Jan. 10-23 Reuters poll of 54 economists predicted the economy will grow 6.9% this fiscal year, a small upgrade from 6.7% in a December poll. It was then forecast to expand 6.3% next fiscal year, the same as in the previous poll.

While inflation rose to the fastest pace in four months in December to 5.69%, driven by pressures from food prices, economists expect that to fade soon.

"We expect inflation to subside quite drastically in the short run, catching up to the downside with already-subdued core inflation," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

"At the same time, though, these trends also reflect an enduring sluggishness taking hold in the economy, particularly with regards to private consumption, the most important aspect of growth."

The survey showed consumer price inflation averaging 5.4% and 4.7% this fiscal year and next, with a majority of economists, 23 of 32, of the view the risk of a significant resurgence over the coming six months was low.

Consumer spending, which makes up 60% of Asia's third-largest economy, has slowed. But a strong majority of economists, 25 of 28, said employment will improve in the next six months.

Still, with job growth not matching the overall economic growth rate or the pace of millions of young people joining the workforce every year, the dip in consumption will likely take a toll.

"While the Indian economy is on a strong momentum...there are signs of a moderation on account of a weakness in private consumption demand," said Suman Chowdhury, chief economist at Acuite Ratings and Research.

"But this will depend on the measures taken by the government to generate more employment and enhance the disposable incomes of a larger section of the population."