Q2 GDP numbers disappointing but not alarming, says CEA Nageswaran

India’s second-quarter GDP growth rate of 5.4 per cent is disappointing but there is no reason to be alarmed as the economy has many bright spots, Chief Economic Advisor (CEA) V Anantha Nageswaran said on Friday.

 

He said the latest GDP growth numbers were a one-off development and not the beginning of a trend, amid a challenging global environment that has cast a shadow on domestic manufacturing.

 

“We should expect to see the growth in the second half of the current financial year…We need to be aware that the global context is not the same as it was in the first decade when there was synchronised global growth, resulting in capital formation growth,” Nageswaran said. 

 

He stressed that geopolitical conditions remained fragile and may continue to impact domestic inflation, supply chains, and capital flows. The record production estimates for kharif foodgrains and promising rabi crop prospects augur well for farm income and rural demand, the CEA said, adding that the economy shows resilience, underpinned by steady demand, and strong manufacturing and service sector activity.

 

India’s growth slowed to a two-year low of 5.4 per cent in the July-September quarter due to poor performance of the manufacturing and mining sectors.

 

There is a need to examine the impediments that stand in the way of capital formation, Nageswaran said, asserting that capital expenditure has room for expansion in the remaining months of this financial year.

 

In his presentation on the GDP numbers, the CEA highlighted that limits to states’ capacity on capex, capital-intensive growth in the private corporate sector, and the regulatory environment were medium to long-term risk factors for economic growth.

 

The government’s capex for the April-October period contracted 14.7 per cent year on year (Y-o-Y), according to data released by the Controller General of Accounts.

 

Nageswaran said that better growth in labour incomes held the key to sustained demand growth and capital formation in the private sector.

 

He noted that doubling down on deregulation in state and local governments while putting in place hiring and compensation policies was needed to realise employment and manufacturing aspirations.

 

“If we do that, then sooner rather than later, the second quarter growth numbers will become a distant and fading memory,” he added. 

 

He said exports face greater uncertainties due to potential policy development elsewhere and an uncertain outlook for monetary policy and economic growth in advanced economies.

 

“Global context keeps evolving and uncertainties are cropping up whether it is the strength of the dollar or the potential for trade action elsewhere and cheaper imports,” Nageswaran said.

 

However, global crude oil prices remaining low bode well for economic activity and price stability, he added.