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Private sector capital formation, supported by the government’s capex push, has already taken off with investment intentions coming back in a big way, Chief Economic Advisor (CEA), V Anantha Nageswaran, said on Thursday.
“India’s real GDP growth towers above many other countries’ estimates. These numbers are on a slow and steady upward trend. A slowdown in the global economy and trade may moderate export growth, but overall, it may be better for us,” Nageswaran told reporters.
He reiterated that the government is comfortable with the GDP forecast of 6.5 per cent for FY24 as risks to the forecast were evenly balanced.
The CEA was speaking at a virtual briefing on the state of the economy as India’s real gross domestic product (GDP) grew by 7.8 per cent for Q1FY24.
Stressing that prolonged geo-political uncertainty and likely tighter financial conditions also pose a challenge to the future growth outlook, the CEA also said that while food inflation is likely to subside, the impact of deficient monsoon in August has to be watched.
“Growth prospects appear bright, though external factors pose a downside risk,” the CEA said.
On inflation, Nageswaran said that the food inflation is likely to subside with the arrival of fresh stock in the market and the government’s pre-emptive measures. He also said that firming up of prices of Brent Crude may warrant attention.
Allaying concerns around rising vegetable prices, Nageswaran said that there was no real cause of concern that inflation would spiral out of control as the government as well as the Reserve Bank of India (RBI) were taking adequate measures to ensure adequate supply.
Nageswaran said that investment and consumer momentum will underpin solid growth prospects over the coming year with private sector capital formation, becoming a big plus for economic growth, employment and income gains for households.
He said that the government’s capital expenditure push is paying off in terms of generating and crowding in the private sector. The Union government’s growth in capital expenditure was 52 per cent in the first quarter year on year.
“The state capital expenditure also picked up very significantly, even though it might have been concentrated in a few states. It is very impressive to note that they are also now joining the capex creation bandwagon that the union government has been championing over the last five to six years,” the CEA added.
He also added that the new investment projects announced by the private sector were the highest in Q1 FY24 in 14 years.
Nageswaran said the government is on the path of fiscal consolidation with the fiscal deficit as a percentage of budget estimate less than past five years’ average in April-July period of FY24.
“I don’t see any threat to the FY24 fiscal deficit target of 5.9 per cent of GDP at this point,” he explained.
The CEA’s presentation also highlighted that the urban conditions were resilient and rural demand was showing recovery.
FMCG volume sales, for instance, saw the highest growth in the last eight quarters in Q1FY24, induced by a revival in rural demand, he said.
Nageswaran added that the slowdown in global demand in terms of merchandise exports was not unexpected or concerning and that the external sector was stable despite headwinds.
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