GDP growth of 6.5-7% for FY25 still feasible despite Q2 slowdown: CEA Nageswaran

Noting that the Q2 GDP growth print of 5.4 per cent was the first estimate, V AnanthaNageswaran, Chief Economic Advisor, indicated that the number could even be revised upwards. 

Nageswaran’s remarks on GDP growth outcome likely to be at 6.5-7 per cent are significant as the RBI is widely expected to Friday reduce its GDP growth projection for 2024-25 from earlier 7.2 per cent in the wake of recent Q2 slowdown. 

Finance Ministry’s optimism on growth prospects may have a persuasive value with the central bank in latter’s growth estimate revision on Friday, say economy watchers.“We shouldn’t over-interpret the second quarter slowdown. In reacting to this number, we shouldn’t throw the baby with the bath water. Because the underlying growth story remains intact,” Nageswaran said at Assocham organised Bharat@100 Summit in the Capital. 

“If one were to run the Indian economy against a checklist, the health is quite robust if it comes to external debt as a share of GDP, non-performing assets in banking system in control and overall headline inflation being well behaved (except food items),” Nageswaran said. 

Nageswaran also highlighted that the second quarter also saw a spike in global uncertainty index and supply chain pressures intensified. 

CEA said that the global backdrop is far from conducive and stressed the need to pull domestic levers to bolster overall GDP growth. “There is going to be lower economic and trade growth globally. Trade restrictions will be the norm rather than exception and that will also affect investment flows. Geopolitics is going to be fragmented,” he said.

Nageswaran also highlighted that private sector profitability has been very impressive in recent years and gone up 4x in the last four years. However, compensation level to employees has become weaker and weaker. 

“Not paying employees well will be self-destructive to corporates themselves and enough incomes won’t be there among the employees to fuel demand and buy products produced by corporates,” he added. 

Nageswaran also said that private sector investments in research and development need to go up. “Corporates must also make India as byword for quality. They should abandon the use of word ‘jugaad’. We need to think big,” he added. 

Nageswaran highlighted the “negative working capital issue”, noting that the small and medium enterprises are now funding the working capital of large corporates. “India Inc needs to reflect on the negative working capital”, he said. 

On consumption, Nageswaran said that consumption growth in economy has been steady and rural consumption in particular has done well.