Full-Year Growth Prediction Maintained At 6.5%, Says CEA Nageswaran

The Chief Economic Advisor, Anantha Nageswaran, maintained that the first quarter growth estimates of 7.8% are in line with the government and Reserve Bank of India's growth prediction for the full year of 6.5%.

However, August rainfall deficiencies and geopolitical risks continue to underpin growth prospects, leaving the Finance Ministry in a watchful mode, he told reporters in a virtual briefing on Thursday.

Nageswaran is optimistic about the recovery of rural demand and private capital formation. Rural demand for FMCGs has increased, especially for high-value goods, and is not concentrated in specific pockets, he said.

"India's real GDP growth towers other countries' estimates. Recently, the International Monetary Fund upgraded its growth estimate for India for the current financial year from 5.9% to 6.1%."

According to him, both the RBI and the Ministry of Finance "are very comfortable maintaining our estimate of 6.5% for FY24".

The services sector emerged as the main driver of growth, he said. Despite slow global trade growth, the trade balance continues to remain positive as services exports have stopped India's overall trade from deteriorating, Nageswaran said.

India's exports contracted by 15.88% in July, the sixth straight month of decline, to $32.25 billion due to a global slowdown and a fall in shipments of key sectors like petroleum, gems, and jewellery.

Diminished export demand in American and European markets was also seen, with merchandise exports falling 15.9% YoY in July. Services exports, however, rose by 12% YoY in July.

Nageswaran said that a slowdown in the global economy may be better for India overall as it allows for cheaper global commodity prices, particularly oil.

Inflationary pressures, on the back of soaring vegetable prices, led to costlier thalis (food plates), with the CPI rising to 7.4% in July from 4.8% in June.

According to him, higher prices were not a cause for concern as inflation management was not "out of control". Reservoir levels, too, are tracking at 79% of last year's levels, and there is adequate Kharif sowing to ensure future production, the CEA said.

Enhanced imports of tur dal are also expected to moderate pulse inflation, he said. Pulses have been flagged by economists as the next food group that may come under pressure as rainfall remains scanty and drier times persist.

In its July monthly economic review, the ministry maintained that food inflation led by vegetable price rises is expected to be 'transitory,' and the government is taking adequate supply-side measures to ensure that there is adequate supply and availability.

Though growth prospects appear bright, there are external factors that pose a downside risk.

The CEA's outlook for the year includes:

• Investment and consumer momentum are expected to "underpin solid growth prospects over the upcoming year".

• The private sector's capital formation, supported by the government's capex push, is underway.

• The impact of August's deficient rains is to be watched.

• A slowdown in the global economy and trade may moderate export growth, but it may be overall better for India.

• The firming of prices for Brent crude oil may warrant attention.

• Prolonged geopolitical uncertainty and likely tighter financial conditions also pose a challenge to the growth outlook.