RBI Guv Shaktikanta Das attributes India's Q1 GDP fall to EC model code of conduct, reduced spending; says 'growth story is intact'

India's economic growth decelerated to 6.7% in the April-June quarter of 2024, marking a 15-month low. This slowdown contrasts sharply with the 8.2% growth recorded in the same period last year. According to Reserve Bank of India (RBI) Governor Shaktikanta Das, the primary reason for this slowdown was reduced government spending due to the enforcement of the model code of conduct during the recent Lok Sabha elections.

Das noted, "The Reserve Bank projected a growth rate of 7.1% for the first quarter. However, the first advance estimation data released by the National Statistical Office (NSO) showed the growth rate at 6.7%."

Impact of Reduced Government Spending

The lower-than-expected growth rate is largely attributed to decreased government expenditure during the election period. Das explained that both central and state government spending were constrained due to the model code of conduct, which is enforced during elections to ensure fair practices.

Das highlighted, "Only two aspects have pulled the growth rate slightly down. Those are government (both central and state) expenditure and agriculture." He further stated, “We would expect the government expenditure to pick up in coming quarters and provide the required support to growth.”

Sector-Wise Performance

Despite the overall slowdown, core economic sectors performed robustly. Consumption grew by 7.4%, investment increased by 7.5%, and manufacturing saw a growth rate of 7%, compared to 5% in the previous year. The services sector grew by 7.7%, and construction expanded by 10.5%.

However, agriculture growth was minimal at around 2%, down from 3.7% in the same quarter last year. Das attributed this to the delayed onset of the monsoon, though he expressed optimism about the sector's future performance due to favorable rainfall. "The agriculture sector in the first quarter has grown by 2% but thanks to the monsoon being very good this year and monsoon initially made a slightly late start. But it has really now covered large parts of the country excepting few parts in eastern India," Das said.

Future Outlook

Governor Das remains confident that the RBI's annual growth projection of 7.2% will be achieved. He believes that with increased government expenditure in the coming quarters and positive developments in agriculture, the growth momentum will be supported.

Das added, “Under these circumstances, we have reasonably confident expectations that the annual growth rate of 7.2% projected by the RBI will be materialized in coming quarters.” He reiterated, “I would like to say with all humility and sincerity and with all confidence that the Indian growth story is intact.”

Government and Expert Perspectives

Chief Economic Advisor V Anantha Nageswaran shared similar sentiments, attributing the moderation in growth to the elections and subdued government spending. He remained optimistic about the overall growth momentum, noting, “The growth momentum remains strong. The first quarter slowdown was anticipated due to the election and due to slowdown in government spending...there is healthy progress in monsoon, corporate and bank balance sheets are in good shape.”

Global Comparison

India’s growth rate of 6.7% for the April-June quarter continues to surpass China’s 4.7% growth for the same period, underscoring India's position as the fastest-growing major economy. With expectations of increased government spending and continued positive trends in agriculture, India is expected to sustain and potentially enhance its economic growth in the upcoming quarters.

(With inputs from ANI)