Business News | India's GDP Growth Expected to Move Closer to Trend Growth of 6.5-7 Per Cent: CRISIL

New Delhi [India], December 16 (ANI): India's gross domestic product (GDP) growth is expected to align with the long-term trend of 6.5-7 per cent as technical factors that caused fluctuations begin to normalise, according to a CRISIL report.

While the post-pandemic period saw a sharp rebound and significant variations in GDP growth, these irregularities are now settling down, signalling a return to stability.

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Post-pandemic, different economic segments recovered at varied speeds. The government's focus on infrastructure spending played a pivotal role in driving economic recovery by creating multiplier effects.

Additionally, strong corporate and bank balance sheets and healthy external markets contributed to India's economic resilience.

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However, certain technical factors disrupted GDP growth patterns in recent years. For instance, net product taxes were impacted by a surge in government subsidies during the pandemic, and swings in commodity prices led to volatility in the GDP deflator.

These disruptions caused GDP growth to surge to 8.2 per cent last fiscal while creating a divergence with gross value added (GVA) growth.

The current fiscal year has seen these technical factors normalize, leading to slower GDP growth. Net tax growth, a major contributor to GDP growth last fiscal, has slowed significantly due to a high base.

In the first half of this fiscal, net product taxes grew by just 3.3 per cent, compared to 10.5 per cent in the same period last year. This reduced the contribution of net taxes to GDP growth from 77 basis points (bps) last year to 25 bps this year.

The GDP deflator, which measures inflation-adjusted GDP, is also stabilizing. It rose to 2.7 per cent on-year in the first half of this fiscal, compared to a low of 0.8 per cent last year.

A key factor driving this increase is the rise in wholesale price index (WPI) inflation, which averaged 2.7 per cent in the first half, up from -1.7 per cent in the same period last year. This normalization is moderating real GDP growth but also reducing distortions between nominal and real GDP figures.While normalisation of technical factors has slowed GDP growth, high interest rates and fiscal consolidation have also contributed to the moderation.

Yet, the main macroeconomic drivers remain strong. Private consumption, which accounts for 56.3 per cent of GDP, grew by 6.7 per cent in the first half of this fiscal compared to 4.1 per cent last year.

Fixed investment growth, although slower at 6.5 per cent compared to 10.1 per cent last year, continues to maintain a larger share of GDP than in the pre-pandemic decade.

CRISIL projects GDP growth for the current fiscal to range between 6.5-7 per cent, aligning with India's pre-pandemic trend. Improving consumption demand, bolstered by a healthy monsoon and rural recovery, is expected to drive growth momentum.

While growth this fiscal may be lower than last year's 8.2 per cent, it is anticipated to be more balanced across sectors, indicating a healthier trajectory for the economy. (ANI)

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