India's surprise GDP driven by more than just one-off factors, says CEA

The surprise 8.4% surge in gross domestic product was largely due to base effects related to subsidies, which boosted the net indirect tax category, CEA V Anantha Nageswaran said

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By Ruchi Bhatia

India’s 8 per cent-plus growth last quarter was driven by more than just one-off factors, suggesting there’s strong momentum in the economy, the government’s top economic adviser said. 

The surprise 8.4 per cent surge in gross domestic product was largely due to base effects related to subsidies, which boosted the net indirect tax category, Chief Economic Adviser V Anantha Nageswaran said in an interview on Thursday. 

Even so, growth of about 8 per cent in the previous two quarters, and high frequency indicators are “pointing to the fact that it is not because of this one-off boost coming from indirect taxes” alone, he said. “There is underlying and intrinsic momentum in the economy.”

 

India’s “optimal” growth rate is 7 per cent, but the “desirable” rate is 8 per cent, Nageswaran said. Achieving that faster growth would require a number of economic reforms, some of which are “low-hanging fruit,” he said, such as implementing labor and land policies. That could “sustainably take us closer to 8 per cent,” he said.

Nageswaran, a former banker who was appointed to his current post in 2022, said the government’s official growth forecast of 7.6 per cent for the current fiscal year ending in March was probably too conservative. The forecast implies GDP would expand 5.9 per cent in the current quarter, which is “unrealistic,” he said. Growth “will be higher than that,” he added.

His comments echo those of central bank Governor Shaktikanta Das, who said Wednesday growth will probably be close to 8 per cent this fiscal year.

The government’s focus on building physical and digital infrastructure in the past decade has increased the economy’s potential to grow at higher rates for a longer period, he said.  

Prime Minister Narendra Modi’s government has doubled infrastructure spending in the past three years, and has allocated about 11 trillion rupees ($133 billion) to the sector in the coming fiscal year.