India’s economy experienced an acceleration in growth, reaching 6.1 percent in the January-to-March quarter, fuelled by government and private capital spending. Despite sluggish private consumption, India’s growth remains strong compared to other emerging economies, particularly China, whose recovery has faltered. The government expects growth to be around 6.5 percent for the current fiscal year, with Chief Economic Adviser V Anantha Nageswaran stating that risks are evenly balanced between downside and upside possibilities.
Indicators such as car sales, steel production, and power consumption in April indicate a pick-up in activity and sustained growth momentum, according to Nageswaran. India’s economy exceeded expectations, outperforming a forecasted 5 percent growth in the last quarter of the previous fiscal year, with the full-year growth estimate revised to 7.2 percent from 7 percent. However, economists caution that the global slowdown and financial market volatility could pose risks to exports and future growth.
While the manufacturing sector expanded by 4.5 percent year-on-year in the January-to-March quarter, up from a contraction of 1.4 percent in the previous quarter, private consumption, which constitutes nearly 60 percent of the economy, grew by 2.8 percent. Capital formation, an indicator of investment, rose by 8.9 percent. The uneven recovery is evident in the skewed consumption demand, primarily benefiting households in the upper-income bracket, according to economists. Meanwhile, government spending increased by 2.3 percent, reflecting Prime Minister Narendra Modi’s efforts to boost capital expenditure for infrastructure development.
To address the challenge of job creation, economists suggest that India needs to sustain annual growth rates of 7 to 8 percent and build a robust manufacturing sector. Currently, 45 percent of the workforce is employed in the agricultural sector, which contributes only 15 percent to the economy. The issue of low-quality employment remains significant, as indicated by the rising unemployment rate of 8.1 percent in April. The government’s focus on infrastructure development aims to revive the economy and generate employment opportunities for millions of workers.
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