Strong services activity and robust demand helped India's economy grow at its fastest pace in a year during the April-June quarter, but a drier-than-average monsoon season could slow the country's economic expansion going forward.
The annual rate of increase in GDP was 7.8% in the most recent quarter, up from the 6.1% seen in the three months ending in March.
Since the second quarter of 2022, when growth hit 13.1%, this was the highest reading.
In light of China's slower post-pandemic recovery, India's economy has remained one of the world's fastest growing major economies. V. Anantha Nageswaran, India's chief economic adviser, has not changed his annual growth projection from 6.5%.Nageswaran noted that while growth seemed promising, there was a risk from outside forces.
Despite the Reserve Bank of India's policy tightening, India's GDP statistics was robust, according to Thamashi De Silva of Capital Economics. Since May of 2022, the RBI has maintained an interest rate increase of 2.5 percentage points.
According to Bank of Baroda economist Madan Sabnavis, "the push is provided by the services sector," which includes industries such as trade, transportation, finance, and real estate. These sectors have seen respective growth rates of 9.2% and 12.1% from relatively high starting points.
The expansion of construction activities was likewise very high, at 7.9 percent.
However, most economists have cautioned that the current drought could slow GDP in the following quarters.
After the driest August in more than a century, September is forecast to bring about average rainfall to India.
According to Suvodeep Rakshit, senior economist at Kotak Institutional Equities, "going forward, we need to watch for risks to the agriculture sector, sustenance of [capital expenditure] push from central and state governments, global demand conditions, and lagged impact of interest rate hikes."
The manufacturing sector rose 4.7% from the previous quarter and 4.5% from the previous year, while private consumption, which accounts for about 60% of the Indian economy, grew by about 6% year over year.
In contrast, annual growth in capital creation slowed to around 8% from 8.9% in the previous quarter, suggesting a slowdown in investment.
The rising cost of food
Vegetable and cereal price hikes drove up retail inflation in India to their highest level in 15 months in July.
Despite the need to keep an eye on commodity prices due to low reservoir levels, Nageswaran assured his audience that "there is no real possible concern inflation will spike out of control."
However, other economists believe that the dry spell will have a chilling effect on consumer spending.
According to Rajani Sinha, chief economist at CareEdge Ratings, "high food inflation for a prolonged period could weigh on consumption growth."
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