CEA confident of 7% growth driven by higher rural consumption

NEW DELHI: Despite the economy posting a 15-month low growth rate of 6.7 per cent in the first quarter of FY25, Chief Economic Advisor (CEA) V Anantha Nageswaran remains optimistic about achieving a sustained medium-term growth rate of 7 per cent, driven by improving rural consumption.

He emphasised that this target is attainable if the growth builds on the structural reforms implemented over the past decade.

“Rural consumption has indeed stabilised and is improving, with a good monsoon expected to further boost rural and overall consumption in the coming quarters,” Nageswaran said during a virtual press conference on the latest GDP figures.

India recorded a GDP growth of 6.7 per cent for the quarter ending June 2024.

The CEA noted that many commentators had anticipated a slight slowdown in GDP growth due to the elections, which led to reduced government spending and capital investment.

Demand and supply sides

However, he pointed out that there is now a better alignment between the demand and supply sides of the economy, with private final consumption expenditure, gross fixed capital formation, and net exports performing well.

“The Indian economy is sustaining its growth momentum, and the private sector is beginning to invest,” Nageswaran added.

He expects the agriculture and allied sectors to recover further into the financial year, supported by normal rainfall and reservoir storage levels higher than the ten-year average. Healthy progress in monsoon rainfall and increased kharif sowing year-on-year (YoY) are positive indicators for rural demand and agricultural output.

Fiscal deficit target

Nageswaran also reiterated the government’s commitment to its fiscal deficit target, reducing it from 5.1 per cent to 4.9 per cent for FY25, and affirmed that the goal of 4.5 per cent for FY26 is on track.

He highlighted that the Gross Value Added (GVA) at basic prices and GDP are recovering from the contraction caused by the COVID-19 pandemic, which significantly impacted growth rates in the first quarters of 2020-21 and 2021-22.

However, Nageswaran raised concerns about potential risks, including the escalation of geopolitical conflicts, which could disrupt supply chains, increase commodity prices, revive inflationary pressures, and delay monetary policy easing, with possible effects on capital flows.

He also noted the need to address the recent decline in the consumer confidence index, as households have become less optimistic about the employment situation and income prospects, stressing that this downturn should be seen as a temporary phenomenon.