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India’s Q2 GDP growth slowed to a shocking 5.4%, the lowest since Q3 FY23. Speaking at a briefing on Thursday, December 12, Nageswaran acknowledged the slowdown observed in the second quarter of the fiscal year but emphasised that it is not merely a data artefact, and the numbers are likely to be revised upwards as more data comes in.
“We will be on track to achieve the numbers we had pencilled in the Economic Survey somewhere between 6.5% and 7%,” Nageswaran stated, pointing out that various factors could have contributed to the slowdown in Q2. These include seasonal factors such as heavy rainfall and religious observances in September, which may have temporarily impacted economic activity.
However, he also noted that there could be more fundamental issues at play, including the government’s ability to spend as budgeted and the ongoing post-COVID dynamics in the private sector, particularly regarding hiring and compensation trends.
“While it could be something as simple as a seasonal factor, there may also be more significant structural changes at work, especially in terms of household income, consumption, and savings patterns post-COVID,” Nageswaran said.
“At this stage, we are not necessarily ruling out any factors; they could be temporary or mundane, or they could be more serious, but I remain confident that we will be on track to meet our target.”
Private Sector Deploying Capital, Capital Formation Rising
Nageswaran highlighted the positive developments in the private sector, noting that businesses are beginning to deploy capital at a much faster rate, buoyed by stronger balance sheets.
He expressed satisfaction with the rising capital formation in the economy, which has reached 30.8% of GDP, up from the pre-COVID level of 27.3%. The surge in capital formation has largely been driven by government-led public investment initiatives, he mentioned.
“The rise in capital formation is a promising sign, and we expect this share of GDP to move toward the mid-30s over the next five years,” Nageswaran said, underscoring that this shift is a critical factor for sustaining economic growth in the long term.
Recently, the CEA said that the hiring practices by corporate houses need to be looked at as wage growth for contract employees in different sectors has not kept up with inflation.
“Profitability growth of corporates has been absolutely impressive, the truth is the corporate sector has never had it so good as in the last four years despite the challenging environment. However, compensation to employees has become weaker, corporates have used profits to deleverage,” CEA pointed out at an event in Delhi on December 5.
Global challenges and focus on domestic growth
The CEA said current global challenges could impact India’s growth prospects. He said these challenges are likely to be enduring, and India must adapt to a world that will be “extraordinarily difficult” to navigate in the coming years.
In this context, he emphasised the importance of focusing on sustainable growth through domestic efforts.
“Global challenges, particularly in areas like emissions mitigation, are going to be a significant overhang for developing countries like India,” Nageswaran said. “As such, we need to double down on our domestic efforts for growth, focusing on sectors like MSMEs, agriculture, and R&D to ensure that we remain resilient in the face of external shocks.”
