India’s economy grew at the fastest pace in a year in the June quarter, amid monsoon risks

NEW DELHI, Aug 31 (Reuters) – India’s economy grew at its fastest pace in a year in the April-June quarter, supported by robust service activity and robust demand, but a drier-than-usual monsoon season could constrain future growth.

Gross domestic product expanded 7.8% year-on-year in the June quarter, accelerating from 6.1% growth in the March quarter, and beating expectations of 7.7% in a Reuters poll.

It was also the highest reading since the corresponding period in 2022, when growth reached 13.1%.

India remains one of the fastest growing major economies, especially with China’s post-pandemic recovery slowing. He is the Chief Economic Adviser in India. Anantha Nageswaran, on his forecast of 6.5% growth for the full year. “Growth prospects look bright, although external factors pose a downside risk,” Nageswaran said.

Thammachi De Silva of Capital Economics said Indian GDP data was strong despite policy tightening by the Reserve Bank of India. The Reserve Bank of India has raised interest rates by 250 basis points since May 2022.

“The boost is being provided by the services sector where trade, transport, finance and real estate both grew by 9.2% and 12.1% at high core growth rates,” said Madan Sabnavis, economist at Bank of Baroda.

Construction activity growth was also strong at 7.9%.

But most economists warned that dry conditions could hurt growth in the coming quarters.

India is likely to receive an average amount of rain in September, after its driest August in more than a century.

“Going forward, we need to monitor risks to the agriculture sector, support for capital spending from central and state governments, global demand conditions and the delayed impact of rate hikes,” said Suvodeep Rakshit, chief economist at Kotak Institutional Equities.

In the April-June quarter, private consumption, which accounts for nearly 60% of the economy, grew about 6% year-on-year, up from 2.8% in the March quarter, while manufacturing expanded 4.7%, compared to 4.5% in the previous quarter. . The previous three months.

However, capital formation growth, an indicator of investment, eased to about 8% year-on-year from 8.9% in the previous three months.

Inflation risks

India’s retail inflation rate rose to a 15-month high in July, with soaring prices of vegetables and grains.

Because of the weak reserve levels, commodity prices must be monitored, Nageswaran said, adding that “there is no real potential concern that inflation will get out of control.”

Some economists take a different view and expect dry weather to limit spending.

“High food price inflation for a prolonged period may affect consumption growth,” said Rajani Sinha, chief economist at CareEdge Ratings.

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