India's economic growth is expected to have slowed to its weakest pace in a year during the April-June quarter, primarily due to reduced government spending in the run-up to national elections, according to a Reuters poll.
The poll, conducted between August 19 and 26, forecasts a 6.9% annual growth in Gross Domestic Product (GDP) for the quarter, down from 7.8% in the preceding quarter. Predictions varied between 6.0% and 8.1%. The official GDP data for this period is due to be released on Friday.
The slowdown follows a period of robust growth above 7% driven by strong capital expenditure by Prime Minister Narendra Modi's government, aimed at securing a third term. Despite the Bharatiya Janata Party (BJP) retaining power, it lost its outright majority in the lower house, prompting a cutback in public spending.
Dhiraj Nim, an economist at ANZ, noted that while public spending on capital projects slowed, private consumption and overall manufacturing and non-public services remained steady. He suggested that the strength of private consumption will be crucial in determining the sustainability of future growth rates.
The poll predicts India's growth will average 7.0% this fiscal year and 6.7% in the following year. Despite a near 8% growth rate in the previous quarter, consumption, which represents over 50% of GDP, grew at only half that pace.
In response, the government allocated billions for rural spending and job creation in its first budget after the elections. Kunal Kundu, India economist at Societe Generale, expects modest improvement in domestic demand but notes that real consumption recovery may take several quarters. Consumer price inflation was recorded at 3.54% in July and is anticipated to average around 4.5% for the current and next fiscal years.
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