India set to lose fastest-growing major economy tag this year

INDIA is set to lose its fastest-growing major economy tag this year, as growth took a hit from weakening demand at home and abroad.

Gross domestic product will grow 7 per cent in the fiscal year ending March, according to the first official estimate released by the Statistics Ministry on Friday (Jan 6). That compares with a 6.8 per cent expansion forecast by the Reserve Bank of India, as well as the median estimate in a Bloomberg survey of economists.

That performance follows an 8.7 per cent pace of expansion in the previous year, and will be second only to Saudi Arabia’s expected 7.6 per cent growth, thanks to gains from a spike in energy prices.

The Indian government uses the advance estimate to decide its spending priorities in the upcoming federal budget on Feb 1, which will also be the last full-year expenditure plan of Prime Minister Narendra Modi’s government before elections in 2024. 

“The headline numbers are in-line with our estimate,” said Aditi Nayar, economists at ICRA in New Delhi. Buoyant, albeit mixed domestic consumption should be able to stave off some pain from weak exports, she added. 

India had a good start to the current fiscal year, with expectations that pent-up demand will drive recovery in Asia’s third-largest economy. But the optimism quickly faded as an unprecedented monetary policy tightening by central banks to tamp down high inflation is pushing many advanced economies toward a recession, and is tempering growth in others. 

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The Reserve Bank of India, which has raised its benchmark rate by 225 basis points so far this fiscal, isn’t done with tightening yet. Most economists expect the central bank to deliver another quarter-point of tightening at its next policy review on Feb 8 as core inflation remains sticky.

Gross value added– which strips out tax and subsidy transfer payments – is seen growing 6.7 per cent. Manufacturing output is estimated to rise 1.6 per cent, while mining sector is seen expanding 2.4 per cent and agriculture is projected to grow 3.5 per cent.

Gross fixed capital formation, a proxy for investment, is forecast to increase 18 per cent, whereas government spending is seen increasing 11.2 per cent. Private consumption is seen to grow at 16.3 per cent. BLOOMBERG