India’s GDP growth hits again
The Indian economy is maintaining its pace among the major economies of the world, according to a report by Reuters, India’s GDP is expected to grow at the rate of 7.3% in the July-September quarter. This figure sounds fantastic, especially when there is pressure from US President Donald Trump to impose up to 50% tariff (import duty) on Indian goods.
It took command of the economy
The real heroes of this quarter’s growth story are ‘villages’ and ‘government’. While on one hand private companies have pulled back, on the other hand rural India has spent heavily. Due to good rains and better farming, demand has increased in villages.
Household consumption, which accounts for about 60% of our entire economy, remained very strong in the last quarter. This simply means that people are buying goods, due to which money is circulating in the market. Along with this, the government has also continued its expenditure on development works, which has provided a strong base to the economy.
How dangerous is Trump’s ‘tariff’?
The other aspect of the picture is a bit worrying. Urban demand is sluggish and private companies are hesitant in making new investments (Capex). A major reason for this is global uncertainty.
The market has been frightened by Donald Trump’s decision to increase the tariff on Indian goods to 50% in August. The effect of this was that foreign investors have withdrawn about 16 billion dollars (net outflow) from the Indian stock market so far this year. Kaushik Das, chief economist of Deutsche Bank, believes that unless the global environment improves, the private sector will not be in a position to spend openly.
Is this boom real?
There is one more twist here which is important to understand. Many economists believe that this 7.3% growth appears to be a bit exaggerated. The reason for this is the reduction of ‘deflator’. To understand in simple language, when inflation is very low, the ‘real’ figures of GDP technically look better.
Wholesale inflation was negligible and retail inflation also remained on an average around 2% between July-September. This has statistically raised the growth rate, while in reality nominal growth (without inflation adjustment) may be weaker. According to Rajni Thakur, Chief Economist of L&T Finance, this statistical support may remain till the end of this financial year.
Indian families are deeply in debt
The coming times are going to be a bit mixed. With the recent cuts in GST, it was expected that people would be left with more money and would increase their spending. But ANZ economist Dheeraj Nim says that Indian families are already heavily in debt, so the money saved from the tax cut may go to repay the debt instead of being spent.
Economists are also a little cautious about the future. It is estimated that the growth rate may slow down slightly to 6.8% in the next quarters and to 6.3% by March 2026. Official figures will be released on Friday, November 28, which will give a completely clear picture.