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India Surprise GDP Wasn’t Only One-Off Factors, Adviser Says

India’s 8%-plus growth last quarter was driven by more than just one-off factors, suggesting there’s strong momentum in the economy, the government’s top economic adviser said.

A bottling plant in Bengaluru, India. Photographer: Dhiraj Singh/Bloomberg
A bottling plant in Bengaluru, India. Photographer: Dhiraj Singh/Bloomberg

India’s 8%-plus growth last quarter was driven by more than just one-off factors, the government’s top economic adviser said, after economists pointed out that the data masked slowing underlying momentum.

The surprise 8.4% surge in gross domestic product was largely due to base effects related to subsidies, which boosted the net indirect tax category, Chief Economic Adviser V Anantha Nageswaran said in an interview on Thursday. 

Even so, growth of about 8% in the previous two quarters, and high frequency indicators are “pointing to the fact that it is not because of this one-off boost coming from indirect taxes” alone, he said. “There is underlying and intrinsic momentum in the economy.”

India Surprise GDP Wasn’t Only One-Off Factors, Adviser Says

The distortion in the GDP data — published just weeks before India heads to elections — was highlighted by several economists, who said it concealed a slowdown in activity. They pointed to gross value added, which excludes net indirect taxes, as a better measure of underlying momentum, showing a slowdown to 6.5% in the quarter. 

India’s “optimal” GDP growth rate is 7%, but the “desirable” rate is 8%, Nageswaran said. Achieving that faster growth would require a number of economic reforms, some of which are “low-hanging fruit,” he said, such as implementing labor and land policies. That could “sustainably take us closer to 8%,” he said.

Nageswaran, a former banker who was appointed to his current post in 2022, said the government’s official growth forecast of 7.6% for the current fiscal year ending in March was probably too conservative. The forecast implies GDP would expand 5.9% in the current quarter, which is “unrealistic,” he said. Growth “will be higher than that,” he added.

His comments echo those of central bank Governor Shaktikanta Das, who said Wednesday growth will probably be close to 8% this fiscal year.

The government’s focus on building physical and digital infrastructure in the past decade has increased the economy’s potential to grow at higher rates for a longer period, he said.  

Prime Minister Narendra Modi’s government has doubled infrastructure spending in the past three years, and has allocated about 11 trillion rupees ($133 billion) to the sector in the coming fiscal year. 

(Update with details of GDP report in the fourth paragraph)

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