On a day when the RBI lowered growth projection for the current fiscal, Finance Minister Nirmala Sitharaman maintained that the Q2 GDP drop was not systemic but impacted by the focus on elections in the first quarter and the absence of activity on capital expenditure (capex) and public expenditure. She stressed that India will retain its “fastest-growing economy” momentum not just this year but also in the next year and the year after.
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RBI has lowered the growth estimates for the current fiscal year to 6.6 per cent from 7.2 per cent. Last week, government data revealed that growth had dipped to a 7-quarter low of 5.4 per cent in the July-September quarter compared to 8.1 per cent during the corresponding quarter of the last fiscal.
- Also read: RBI cuts FY25 GDP growth projection from 7.2% to 6.6%; ups retail inflation projection to 4.8% from 4.5%
The Finance Minister attributed the Q2 slowdown to a range of transient factors. “In an election year, State and central administrations dedicate significant resources to managing the electoral process. As a result, public and capital expenditure, which serve as catalysts for growth, take a backseat,” she explained in a conversation with the Chairman of the 15th Finance Commission, NK Singh at the India-Japan Forum, 2024.
Growth optimism
The FM expressed confidence that growth will pick up in the next quarter.
“It is not a systemic slowdown. It is more of an absence of activity on public expenditure and capital expenditure. I expect Q3 to make up for all this,” she said.
She was optimistic about India‘s long-term growth prospects.
“India has opportunities as much as its share of challenges. I still think India, not just this year but in the next year and the year after, will remain the fastest-growing economy,” she emphasised.
Underlining that India will keep up the growth momentum, the FM said: “Despite global demand concerns, we remain committed to maintaining our position.”
- Also read: GDP growth of 6.5-7% for FY25 still feasible despite Q2 slowdown: CEA Nageswaran
She acknowledged challenges stemming from plateauing global demand, particularly in developed countries, and the impact of climate change on agriculture. “Traditional export areas like textiles and footwear face challenges due to saturating demand, but equally, we see opportunities — not just in newer markets but even within existing ones,” she added.
While highlighting that the purchasing power of Indians was improving, the FM flagged concerns about wage saturation within India. “We are quite seized of these factors which might play on India‘s consumption… India has opportunities as much as its share of challenges,” she added. The Minister also said that the plateauing of demand, particularly in developed countries, was a matter of concern, as was climate change with respect to agriculture and allied products.