NEW DELHI: India's economy is facing what Finance Minister Nirmala Sitharaman describes as a "temporary blip" after the second quarter of fiscal year 2024 saw growth slow to 5.4%, its lowest expansion rate in seven quarters. Responding to concerns raised by lawmakers during the Lok Sabha discussions on the first batch of Supplementary Demands for Grants, Sitharaman emphasized her belief in the country's ability to rebound strongly.
According to data released by the National Statistics Office (NSO), India's GDP growth fell sharply from 6.7% recorded in the previous quarter. During her address on December 17, 2024, Sitharaman acknowledged the challenging environment of the July-September quarter, noting significant global economic pressures. She asserted, "Q2 of this financial year has been challenging for India and most other economies around the world," yet assured stakeholders of the resilience and strength of India's economic fundamentals.
The finance minister highlighted the country's outstanding average GDP growth of 8.3% over the past three years as proof of India's economic strength, stating, "India has been the fastest growing major economy in the world, and the credit goes to the people of India and our leadership." She stressed the government's commitment to fostering economic recovery and dismissed worries about widespread manufacturing declines, indicating instead, "There is no broad-based slowdown in the manufacturing sector. Half of the sectors within the overall manufacturing basket remain strong." This viewpoint is backed by various indicators reflecting continued vibrancy within specific segments of manufacturing.
Sitharaman’s comments come amid calls for monetary policy adjustments to stimulate demand. Observers suggest the central bank may need to cut interest rates to counteract the lower growth figures, particularly as the government’s capital expenditure has shown growth of 6.4% between July and October of the current fiscal year. This investment is part of India's Rs 11.1 lakh crore budget for capital expenditure, aimed at stimulating economic activity.
Inflation management has also been key to the government's narrative, with Sitharaman explaining the successful efforts to keep food inflation under control. She noted, "We in the Union government remain committed to managing food inflation, which has shown volatility driven by weather conditions," citing retail inflation for the fiscal year so far at 4.8%, the lowest level recorded since the Covid-19 pandemic. Core inflation, which excludes volatile food and fuel prices, stands at a decade low of 3.6%. "Retail inflation has eased and has brought much-needed relief from stubborn price pressures," she remarked, indicating optimism for continued economic stabilization.
Several financial analysts, like those from Jefferies, have confirmed the government's optimistic outlook, stating they have noted improvements consistent with Sitharaman's remarks. Jefferies indicated, “The revival in government capex and liquidity rise on relaxed RBI policies should improve GDP growth in the quarters ahead.” They pointed to positive indicators, including surges in diesel consumption and unyielding vehicle tolls, enhancing the overall sentiment around the economy's recovery.
The Minister reinforced commitments to managing inflation and providing measures to bolster agricultural and manufacturing sectors, with additional expenditure including allocations for defense spending and agricultural welfare initiatives. Amounts of ₹6,594 crore for fertilizer subsidies, ₹9,000 crore for agriculture, and ₹8,000 crore for defense spending have been earmarked as part of the government's broader strategy.
Despite skepticism among some economic observers, Sitharaman's firm stance echoes the view shared by many analysts—that the slowdown, marked by the less-than-expected GDP figures, remains firmly categorised as temporary. With insights shared during her Lok Sabha address, she remarked, "I am optimistic about improved performance going forward, indicating the government’s determination to rectify any economic shortfalls swiftly and maintain India’s position as the world’s fastest-growing major economy.”
With various indicators showing signs of potential recovery, both domestic and international observers await how the government’s policies and confidence will translate to tangible economic growth, as Modi's administration navigates through these challenging times.
