The Indian economy grew at a robust 7.8 per cent in the first quarter of the ongoing financial year, despite the adverse fallout from the West Asia conflict. Growth surpassed expectations of most analysts, including the central bank, which, in the last Monetary Policy Committee meeting, had pegged the economy to grow at 7 per cent. The strong number for the quarter suggests that the full year’s estimate of growth — the RBI had, for instance, projected growth at 6.7 per cent — could now be revised upwards.
Economic indicators had suggested that the underlying growth momentum was holding up despite an uncertain environment, with both industry and services growing at a fairly healthy clip. Within industry, manufacturing grew at a strong 9.2 per cent in the quarter while construction maintained a steady pace at 7.7 per cent, according to the National Statistics Office. This reflects in indicators such as cement production and steel consumption. Services have grown by a staggering 10 per cent, driven by the financial, real estate and professional services segment. In the recent State of the Economy report, economists from the RBI had noted that both manufacturing and services firms had seen improvement in their operating profits. For manufacturing firms, operating profit rose to 21.3 per cent during the quarter, up from 9.4 per cent in the one before that, while for IT and non-IT services it rose to 19.9 per cent and 12.7 per cent, respectively. Private consumption remains healthy, growing at 7.1 per cent in the quarter. Buoyant sales of passenger vehicles, two-wheelers and tractors, indicators of both urban and rural demand, reflect this. Investment activity, too, was robust. The capital goods segment in the index of industrial production grew by a steady 15 per cent. Alongside, the Centre’s capex grew by roughly 24 per cent, while the combined capex of 17 major states rose by 6.8 per cent, as per Crisil. Bank credit has also been strong, with loans to both industry and for consumption growing at a fairly healthy rate. The subsequent recovery in the monsoon has aided kharif sowing.
There are, however, expectations of the growth momentum softening over the coming quarters. On the external front, the risks stem from continuing trade and geopolitical tensions —Brent crude oil prices have jumped after the US and Iran exchanged fire — while on the domestic front a strengthening El Niño is a challenge. These will require close monitoring.
