India’s gross domestic product (GDP) growth likely slowed to a four-quarter low of 7.4% in April-June as the disruptions from the West Asia war impacted economic activity as well as the statistical impact of a higher deflator, according to a Mint poll of 21 economists. However, the slowdown is likely to be less intense than previously expected, signalling resilience in domestic demand.
Economists in the poll expect GDP growth in the quarter to come in a wide range of 6.8-8.0%, with all but one expecting growth to be lower than the previous quarter. The official estimate is scheduled to be released on 31 August.
Uneven growth
Sectoral trends also point to uneven growth during the quarter. Industrial activity remained strong despite moderating from a year earlier, while services continued to provide support. However, agriculture is expected to have grown more slowly, weighed by a , economists said.
“Input cost pressures went up in Q1, and so there’s some impact coming from margins, particularly in the petroleum sector and manufacturing. The other reason is the deflator also goes up,” said Gaura Sengupta, chief economist, at IDFC FIRST Bank.
According to Kunal Kundu, an economist at Societe Generale, the moderation in GDP growth from the March quarter partly reflects the normalization of an unusually weak GDP deflator and less supportive base effects. A deflator is an economic metric used to convert current prices or values into constant (real) prices by removing the effect of inflation.
Retail inflation averaged , higher than 2.89% in the same quarter last year. Wholesale inflation saw a much higher print of compared to negligible inflation a year ago.
The higher print could pull real GDP growth down, which is arrived at after adjusting for inflation from GDP value at current (or nominal) prices.
However, despite the disruptions from the West Asia war, GDP growth held up much better than previously expected. Only a partial burden of the shock was passed on to the consumers, allowing domestic demand to remain strong and reflecting upbeat sentiment, said Abhishek Upadhyay, an economist at ICICI Securities.
Should GDP growth come in as projected by economists, it will be higher than the Reserve Bank of India’s (RBI’s) latest projection of 7.0% for the quarter.
More headwinds
While the Indian economy appears to have absorbed much of the initial shock from the better than expected, the upcoming quarters could face more headwinds.
“Growth momentum is expected to moderate in Q2 and Q3 as the impact of external shocks gradually transmits across various sectors of the economy,” economists at CareEdge Ratings said in a report dated 17 August.
Policymakers have flagged risks from elevated and uncertain energy prices, supply-chain pressures and trade policy uncertainties, according to the Reserve Bank of India’s (RBI) latest monetary policy minutes.
As per the latest projection by the RBI, GDP growth is expected at , 6.5% in Q3 and 6.8% in Q4—keeping the full-year average at 6.7%. A higher-than-expected print in Q1 could lead to an upgrade in projections. Economists largely expect GDP growth to be around 7% in FY27.
Rupanjal Chauhan contributed to this story.