India’s economic growth slowed to 6.7% for the April-June quarter, marking a notable deceleration from the 8.2% growth observed in the same quarter the previous year. This slowdown brings the growth rate to a 15-month low and is below the Reserve Bank of India's (RBI) forecast of 7.1% for this period.
RBI Governor Shaktikanta Das attributed this deceleration primarily to two factors: reduced government spending and limited growth in the agriculture sector. The lower government expenditure during the first quarter is linked to the enforcement of the model code of conduct for the recent Lok Sabha elections, which constrained public spending. Das projected that government expenditure would likely increase in subsequent quarters, which could support economic growth.
In addition, the agriculture sector experienced minimal growth of approximately 2% despite favorable monsoon conditions across most of India. Das expressed optimism that the sector would improve as the year progresses, maintaining confidence in achieving the RBI’s annual growth rate target of 7.2%.
Das pointed out that although overall GDP growth has slowed, key economic components such as consumption, investment, manufacturing, services, and construction have each posted growth rates exceeding 7%. However, the restrained performance of government spending and the sluggish growth in agriculture were significant factors dragging down the overall growth rate.
Addressing a national conference of chartered accountants, Das emphasized the importance of major economic reforms introduced over the past decade, including the Goods and Services Tax (GST), the inflation targeting framework, and the Insolvency & Bankruptcy Code (IBC). He underscored that these reforms have played a crucial role in shaping India’s economic trajectory and enhancing its structural stability.
Das also elaborated on the RBI’s mandate to maintain price stability while fostering economic growth. The inflation targeting framework, established through an amendment to the RBI Act in 2016, requires the RBI to keep inflation around 4%, with a permissible deviation of 2 percentage points. In response to inflationary pressures caused by global events such as the COVID-19 pandemic and the Ukraine conflict, as well as domestic factors, the RBI has adjusted interest rates accordingly to manage inflation effectively.
In his speech, Das also highlighted the critical role of quality audits in ensuring the health and transparency of financial institutions. He advised chartered accountants to conduct thorough and accurate assessments of companies' financial conditions, comparing their role to that of doctors diagnosing patients to ensure the integrity and reliability of financial reporting.
Overall, despite the current slowdown, Das remains confident in the underlying strength of India's economy and anticipates a rebound in growth with increased government spending and improvements in the agricultural sector.
