India's economy likely slowed to 6.7% in the April-June quarter, a Reuters poll of economists showed, as subdued private investment and weak industrial activity countered a rebound in government spending.
The Indian government ramped up capital spending during the first quarter of the fiscal year, but weak consumer demand limited private investment in Asia's third-largest economy.
Capital expenditure surged 52% year-on-year to around 2.8 trillion rupees ($32.00 billion) as of June data, with Prime Minister Narendra Modi proposing lower consumption levies on everyday goods and small cars to boost demand.
The Reserve Bank of India's (RBI) efforts to spur demand by cutting the key repo rate by 75 basis points during the same period, including a larger-than-expected half-percentage-point reduction in June, have had a muted impact on growth. Many private banks have yet to pass on lower rates to consumers.
An expected slowdown in gross domestic product (GDP) to 6.7% from 7.4% in the previous quarter according to the median forecast of 70 economists in an August 18-26 Reuters poll is still slightly higher than the RBI's recent forecast of 6.5%.
Forecasts for the data, due on August 29, ranged from 6.2% to 7.3%.
The poll showed India's GDP growth slowing to 6.5% this quarter, 6.3% in October-December and 6.2% in January-March. Growth was forecast to average 6.3% this fiscal year, the slowest in five years.
"Industrial growth has not been very good, and manufacturing is also showing sluggish signs," said Madhavankutty G, chief economist at Canara Bank. "Tariffs and global uncertainties have been one of the major factors that created a shock - and that has slowed private capex."
Gross value added (GVA), a measure of economic activity considered more stable than GDP, rose 6.4% in June quarter, the poll predicted. GVA excludes volatile indirect taxes and government subsidies.
Kunal Kundu, India economist at Societe Generale, noted structural challenges are holding back faster growth. He said the boost from indirect tax changes and subsidy cuts that lifted GDP above GVA in the March quarter likely faded in the June quarter.
While easing food prices and strong agricultural growth have sustained rural demand, stagnant wages and job cuts are curbing urban consumption, economists said.
"At 6.4-6.5% (GDP growth), we won't be able to create meaningful employment on a sustained basis," said Debopam Chaudhuri, chief economist at Piramal Group. "Private capex has to pick up to ensure good-quality, high-paying jobs for a large section of our population."
That has prompted the government to ramp up spending, which began long before recent deteriorating ties with the United States, a major buyer of India's services exports and India's top destination for exported goods.
Capital expenditure surged 52% year-on-year to around 2.8 trillion rupees ($32.00 billion) as of June data. Prime Minister Narendra Modi has also proposed lowering consumption levies on everyday goods and small cars to boost demand.
Some economists warn urban consumption will only rebound if private investment accelerates.
"At 6.4-6.5% (GDP growth), we won't be able to create meaningful employment on a sustained basis," said Debopam Chaudhuri, chief economist at Piramal Group.
"Government expenditure and infrastructure investments can take some of the load in generating employment...(but) It is private capex that has to pick up, to ensure good-quality, high-paying jobs for a large section of our population."
The Indian government ramped up capital spending during the first quarter of the fiscal year, but weak consumer demand limited private investment in Asia's third-largest economy.
Capital expenditure surged 52% year-on-year to around 2.8 trillion rupees ($32.00 billion) as of June data, with Prime Minister Narendra Modi proposing lower consumption levies on everyday goods and small cars to boost demand.
The Reserve Bank of India's (RBI) efforts to spur demand by cutting the key repo rate by 75 basis points during the same period, including a larger-than-expected half-percentage-point reduction in June, have had a muted impact on growth. Many private banks have yet to pass on lower rates to consumers.
An expected slowdown in gross domestic product (GDP) to 6.7% from 7.4% in the previous quarter according to the median forecast of 70 economists in an August 18-26 Reuters poll is still slightly higher than the RBI's recent forecast of 6.5%.
Forecasts for the data, due on August 29, ranged from 6.2% to 7.3%.
The poll showed India's GDP growth slowing to 6.5% this quarter, 6.3% in October-December and 6.2% in January-March. Growth was forecast to average 6.3% this fiscal year, the slowest in five years.
"Industrial growth has not been very good, and manufacturing is also showing sluggish signs," said Madhavankutty G, chief economist at Canara Bank. "Tariffs and global uncertainties have been one of the major factors that created a shock - and that has slowed private capex."
Gross value added (GVA), a measure of economic activity considered more stable than GDP, rose 6.4% in June quarter, the poll predicted. GVA excludes volatile indirect taxes and government subsidies.
Kunal Kundu, India economist at Societe Generale, noted structural challenges are holding back faster growth. He said the boost from indirect tax changes and subsidy cuts that lifted GDP above GVA in the March quarter likely faded in the June quarter.
While easing food prices and strong agricultural growth have sustained rural demand, stagnant wages and job cuts are curbing urban consumption, economists said.
"At 6.4-6.5% (GDP growth), we won't be able to create meaningful employment on a sustained basis," said Debopam Chaudhuri, chief economist at Piramal Group. "Private capex has to pick up to ensure good-quality, high-paying jobs for a large section of our population."
That has prompted the government to ramp up spending, which began long before recent deteriorating ties with the United States, a major buyer of India's services exports and India's top destination for exported goods.
Capital expenditure surged 52% year-on-year to around 2.8 trillion rupees ($32.00 billion) as of June data. Prime Minister Narendra Modi has also proposed lowering consumption levies on everyday goods and small cars to boost demand.
Some economists warn urban consumption will only rebound if private investment accelerates.
"At 6.4-6.5% (GDP growth), we won't be able to create meaningful employment on a sustained basis," said Debopam Chaudhuri, chief economist at Piramal Group.
"Government expenditure and infrastructure investments can take some of the load in generating employment...(but) It is private capex that has to pick up, to ensure good-quality, high-paying jobs for a large section of our population."
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