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India will remain the fastest growing major economy, but demand is mixed – Reuters poll
BENGALURU: India’s economic expansion is likely to moderate but remained strong in the September quarter, supported by strong services activity and strong urban demand despite a global slowdown weakening export growth, according to a Reuters poll of economists.
GDP growth is expected to slow to 6.8 percent in the July-September quarter from 7.8 percent in the previous quarter, according to the median forecast of 55 economists surveyed from November 17 to 27.
But forecasters see that as a slight slowdown from an exceptionally strong quarter for Asia’s third-largest economy, which the same group of economists expect will grow more than 6.0 percent over the coming years, currently the fastest among major economies.
Even as an erratic monsoon pushed inflation higher in the fourth quarter, consumer demand – which contributes about 60% of GDP growth – remained strong in a country of more than 1.4 billion people, driven largely by urban residents.
Expectations for the data scheduled to be released on Thursday ranged between 5.6 percent and 7.4 percent.
“Underlying growth is likely to remain resilient… with utilities, services and construction showing strong growth. Domestic demand remains the main economic driver of activity, with external demand remaining weak,” Barclays’ Rahul Bajoria said in a note.
India’s gross domestic product (GDP) growth is expected to average 6.4 percent in the current fiscal year ending March 31 and 6.3 percent in the following year, driven in part by higher government capital spending, according to a broader Reuters poll.
This projected growth would easily outpace most other economies, many of which have slowed significantly following a historic series of interest rate hikes by central banks to curb inflation. The Reserve Bank of India’s efforts have been moderate in comparison.
Capital spending reached INR 4.91 trillion ($58.98 billion) in the first six months of the fiscal year, higher than INR 3.43 trillion in the same period of the previous year. Economists expect capital spending to rise further in the run-up to national elections scheduled for May 2024.
When asked about the main driver of economic growth for the remainder of this fiscal year, economists were roughly split between government spending (14th) and consumption (13th). Five investment said.
But consumer demand is not uniform across the world’s most populous country, which contains some of the world’s largest cities. Two-thirds of Indians live outside cities.
While rural demand was hit in the July-September quarter due to higher prices of daily goods, demand in urban areas remained strong. However, weak demand in rural areas is expected to be short-lived.
A strong majority of 69 percent of economists who answered a separate question, 20 out of 29, said the gap between rural and urban consumption will narrow over the next two or three years. Six of them said it would remain as it is, and three said it would expand further.
“We expect private consumption growth to recover further as it narrows the gap between rural and urban demand and between goods and services,” Upasana Chachra, chief India economist at Morgan Stanley, said in a note.
Chacha said improved purchasing power with moderate core inflation would help rural consumption.
($1 = 83.2440 Indian rupees)
(Tags for translation) Jubail