India’s GDP expanded 13.5% in the April-June quarter, its fastest growth in a year, but missed the RBI estimate of 16.2%.

Finance secretary TV Somanathan said the Indian economy is “on course” to grow over 7% this fiscal. 

There is concern that India’s economy could slow down again amid rising interest costs and the threat of recession in major world economies.

In the three months through March 2022, GDP had grown 4.09% year-on-year. The growth a year ago was 20.1%, according to official data.

The growth in the June quarter was fuelled by higher household consumption, especially of contact-intensive services, and rising investment activity. In the year-ago quarter, growth was impacted by the second Covid-19 wave.

Demand could get a boost from the festival season next month. But a matter of concern is the slowing growth of the manufacturing sector at 4.8%. Imports is also uncomfortably higher than exports.

Additionally, an uneven monsoon is likely to weigh upon agri growth and rural demand.

A faster GDP growth will allow the Reserve Bank of India (RBI) to focus on controlling inflation, which has stayed above the upper target zone of 6% for seven straight months.

The central bank is expected to hike repo rate in its next monetary policy. It has already raised the benchmark policy rate by 140 basis points in three instalments since May.

Besides tighter monetary conditions, Asia’s third-largest economy faces headwinds from higher energy and commodity prices.

Consumer spending, which accounts for nearly 55% of economic activity, has also been impacted by soaring food and fuel prices.

According to ICRA chief economist Aditi Nayar, GDP growth will certainly moderate in July-September, as the base effect normalises.

This was reflected in moderation in crore sector growth in July. The eight core infrastructure sectors showed growth slowing down to 4.5% in July — the lowest in six months — against 9.9% in the year-ago period.

The output of these infrastructure sectors expanded by 13.2% in June, 19.3% in May, 9.5% in April, 4.8% in March, 5.9% in February and 4% in January.

The production growth of eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — was 11.5% in April-July this fiscal against 21.4% a year ago.  

“We foresee modest downside risks to the NSO’s initial estimate of 12.7% GVA growth in Q1 FY2023, on account of potential downward revisions in the agricultural performance from the current level of 4.5%,” Nayar said.