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India’s Economic Forecasts Predict Slowdown After BJP Loses Parliamentary Majority

India's Economic Forecasts Predict Slowdown After BJP Loses Parliamentary Majority
India's Economic Forecasts Predict Slowdown After BJP Loses Parliamentary Majority

India’s economy, which had been the fastest-growing among major economies with an 8.2% expansion in the last fiscal year, is expected to experience a moderate slowdown. Economists predict growth rates will decline to 7.0% and then 6.7% in the current and next fiscal years, respectively.

These forecasts have not significantly changed despite the Bharatiya Janata Party (BJP) losing its parliamentary majority in recent national elections, contrary to earlier expectations of a comfortable victory for Prime Minister Narendra Modi.

Following the election outcome, the BJP has formed a government with support from regional parties and retained most ministers, suggesting continuity in economic policies.

The government’s strategy has long focused on stimulating GDP growth through capital expenditures, though private sector investment has not matched these efforts, leaving many young Indians underemployed or in low-wage jobs. With no major reforms expected in the near term, economists have maintained their growth projections.

India's Economic Forecasts Predict Slowdown After BJP Loses Parliamentary Majority
India’s Economic Forecasts Predict Slowdown After BJP Loses Parliamentary Majority

One critical concern is weakening consumer spending, which is beginning to impact GDP figures as earlier statistical boosts fade away. Economic growth in the December quarter was notably inflated by a substantial reduction in subsidies, a one-time occurrence unlikely to recur.

The median forecast for this fiscal year’s growth rate is slightly lower than the Reserve Bank of India’s (RBI) own estimate of 7.2%. Economists anticipate a modest increase in private sector capital expenditure and improved consumer spending, though not sufficient to drive robust growth.

Looking ahead, the government is likely to pursue fiscal consolidation while potentially using a significant dividend transfer from the RBI to increase spending in the upcoming budget.

Infrastructure development has been a priority, occasionally at the expense of consumer spending, but there is an expectation that the budget might provide relief, especially for lower-income groups. Discussions are also ongoing about reducing personal income tax rates to stimulate consumer demand.

Despite the BJP’s reduced majority, government policies are expected to remain consistent, focusing on employment generation through manufacturing and enhancement of existing social safety nets. The surplus funds from the RBI and sustained growth in tax revenues are expected to finance these initiatives.

Inflation is projected to remain above the RBI’s medium-term target of 4%, averaging around 4.6% and 4.5% over the next two fiscal years. A single interest rate cut by the RBI is anticipated later in the year, potentially in the October-December quarter, to support economic activity amidst slowing growth.

Michael Sebastian

Written by Michael Sebastian

Michael is a part time trainer at Kerela Sports Academy, he is a sports enthusiast as well as a big fan of basketball.

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