India's economy grew at its slowest pace in five quarters in the April-June period, falling below expectations amid sluggish investment and farm output. That dents the prospects of hitting the 8% mark for the full financial year but the government is hopeful that a bountiful monsoon and increased pay and pensions along with various structural reforms could still take growth closer to that figure.
Gross domestic product (GDP) rose 7.1% in the first quarter, reaffirming India's position as the world's fastest-growing major economy , but sharply lower than 7.9% in the January-March period, data released by the statistics office showed.
A survey of economists had seen June quarter growth at a median 7.4%.
GDP growth in FY16 was 7.6%, ahead of China, while it grew 7.5% in the first quarter last year.
India needs to grow at 8% and more for several years in order to generate jobs, raise incomes and lift millions out of poverty.The latest GDP numbers will put pressure on Urjit Patel, who succeeds Raghuram Rajan as Reserve Bank of India governor next month, over whether to raise interest rates in the October 4 monetary policy announcement amid possible inflationary pressures.
Gross value added (GVA), which is adjusted for subsidies and taxes to arrive at GDP, grew at an improved 7.3%, almost matching 7.4% in the previous quarter, giving the numbers some lustre.
The April-July fiscal deficit was at 73.7% of Budget estimates, only slightly higher than 69.3% at the same time last year.
Some so-called high-speed indicators suggest an improvement in the coming months. The purchasing managers' index for both services and manufacturing inched up in July , and car sales are likely to continue to grow at over 10%.Rajan said earlier this week that a rate cut was possible if inflation slows. Consumer inflation crossed 6% in July , breaching the limits set by the monetary policy framework -4% for the next five years with a 2 percentage point margin on either side.
Gross fixed capital formation (GFCF), a measure of investment, fell 3.1% in real terms in the April-June quarter, suggesting private investment sentiment remains weak. Based on current prices, this measure declined 1.1%, suggesting that the government's efforts to revive stalled projects, clean up banks and boost public investment have not yet galvanised private investment.
Consumption is driving the economy in the absence of investment.