Indian economy is resilient despite Q2 challenges, says CEA Nageswaran

India’s Chief Economic Advisor (CEA), V Anantha Nageswaran, remains optimistic about the nation’s economic prospects despite a slower-than-expected GDP growth in the second quarter of FY2024-25. Speaking at the Bharat @100 Summit hosted by Assocham, he said that the fundamental health of the economy remains robust, according to a report by aNI.

Nageswaran highlighted several indicators demonstrating the economy’s resilience. “If you run through the checklist for the Indian economy, the health is pretty robust,” he noted, pointing to controlled levels of external debt as a share of GDP, declining non-performing assets in the banking system, and stable inflation trends. Although certain food items have caused inflationary spikes, their impact is limited within the overall consumer price index basket, he explained.

The CEA praised the shift in fiscal expenditure priorities over the past seven years, with greater focus on capital investments rather than revenue spending. This reallocation, he suggested, has bolstered long-term economic stability and growth potential.

India’s GDP growth for the July-September quarter was 5.4%, significantly below the Reserve Bank of India’s forecast of 7%. While this has sparked concerns among economists, Nageswaran urged against overreacting. Erratic monsoons and excessive rainfall disrupted economic activity in Q2, he explained, while global uncertainties and supply chain pressures further weighed on growth.

Despite these challenges, he maintained confidence in the broader growth narrative, citing improvements in key economic metrics. For instance, India’s gross capital formation has risen from 27.3% of GDP in the second decade of the 2000s to 30.8% today. Private consumption remains steady, and exports—spanning both services and manufacturing—continue to perform well even amid challenging global conditions.

Nageswaran also underscored India’s growing competitiveness in international trade. He noted that the nation’s total exports as a percentage of GDP now surpass China’s, showcasing its resilience and adaptability in a shifting global trade environment.

However, he cautioned against reading too much into quarterly fluctuations, highlighting the impact of geopolitical developments such as trade restrictions from the US on critical minerals and rare earths, as well as policy shifts in China. These external factors, he suggested, are likely to persist and may continue influencing short-term economic trends.

(with ANI inputs)