In the first Reuters survey of economists since the ruling Bharatiya Janata Party (BJP) lost its parliamentary majority in staged national elections that concluded in early June, predictions for a slight slowdown in India's rapidly expanding economy remained unchanged.
The third-largest economy in Asia grew at the quickest rate among major economies in the most recent fiscal year, at 8.2%. However, a June 19–27 Reuters survey of more than 50 economists predicts that growth would drop to 7.0% and then 6.7% in the current and upcoming fiscal years.
The predictions are essentially the same as they were prior to the election, when Prime Minister Narendra Modi was widely predicted to win handily. Rather, during its record third term, the BJP lost its huge legislative majority.
The BJP, which formed a government with the backing of regional parties and kept the majority of its ministers, indicated that there would be no immediate change in the party's long-standing goal of increasing GDP growth through capital spending.
However, a large number of Indians, especially young people, have been left jobless or working in low-paying positions as a result of the lack of private spending. Since a significant shift in policy is still unlikely, economists maintained their current projections.
"I don't anticipate any significant growth-enhancing reforms whatsoever over the next five years with a reduced majority," Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, stated. "The fact remains that consumption is low. As statistical errors lose their impact, it will only show up more in GDP figures."
The significant decline in important subsidies that boosted GDP in the three months leading up to December caused India's economic growth to exceed most predictions; nevertheless, economists surveyed in the poll believe this circumstance is unlikely to repeat. The Reserve Bank of India's (RBI) own estimate of 7.2% growth rate for this fiscal year is little lower than the median 7.0% growth rate predicted in the most recent survey. Governor Shaktikanta Das of the RBI recently stated that the RBI's estimate may increase even more in the months to come.
Dhiraj Nim, Economist at ANZ highlighted, "While growth is slowing down, it will still approach its potential. I have factored in a slight rise in the private capex cycle, possibly not as robust as what the RBI is projecting. Additionally, consumption (will) increase better, but I don't think it will spur economic expansion.” The majority of economists predict that the government would stick to its general course of fiscal austerity but use the large dividend transfer from the RBI last month to fund increased spending in the budget, which is anticipated to be unveiled in late July.
"For years, the government has prioritized infrastructure development, which has somewhat decreased consumption. Thus, especially for those at the bottom end of the economic range, I think the budget can offer some support," Nim stated. Furthermore, as per two government officials who spoke with Reuters, the administration is thinking about reducing personal tax rates to encourage consumption.
25 out of 39 respondents, or nearly two thirds, stated that the government will not materially change its planned spending in its first full budget over its interim one. The others predicted an increase. "Even if the government was given a smaller mandate than expected, it is unlikely to change its course. It (will) boost financing for employment guarantee programs and spur job growth through manufacturing," Continuum Economics senior Asia economist Sanya Suri stated.
"However, the substantial surplus provided by the RBI and ongoing growth in tax receipts will fund these initiatives." The RBI's medium-term target of 4% is likely to be met by inflation, which is predicted to average between 4.6% and 4.5% for this fiscal year and the following. However, one interest rate reduction from the Reserve Bank of India is anticipated this year, most likely between October and December.
