India’s second-quarter GDP growth rate of 5.4% was described as disappointing but not alarming, with Chief Economic Advisor (CEA) V Anantha Nageswaran pointing out several bright spots in the economy. Speaking on Friday, he characterised the latest GDP figures as a one-off occurrence rather than the beginning of a trend, noting the challenging global environment affecting domestic manufacturing.

Nageswaran remarked that economic growth is expected to pick up in the second half of the financial year, though he cautioned that the global context differs from the synchronised global growth seen in the early 2000s. He highlighted fragile geopolitical conditions as ongoing challenges impacting domestic inflation, supply chains, and capital flows. Despite these headwinds, record kharif foodgrain production and promising rabi crop prospects were said to bode well for rural demand and farm incomes. The CEA emphasised the economy’s resilience, driven by robust demand and strong activity in the manufacturing and service sectors.

India’s GDP growth was reported to have slowed to a two-year low of 5.4% in the July-September quarter, primarily due to weak performance in the manufacturing and mining sectors. Nageswaran urged the need to address obstacles to capital formation, asserting that there is room for increased capital expenditure in the remaining months of the financial year.

In his presentation on the GDP data, he outlined medium to long-term risk factors, including state governments’ limited capacity for capital expenditure, capital-intensive growth in the private corporate sector, and regulatory challenges. Data from the Controller General of Accounts revealed that government capex for the April-October period contracted by 14.7% year-on-year (Y-o-Y).

Nageswaran identified stronger growth in labour incomes as key to driving sustained demand and private sector capital formation. He suggested that deregulation at state and local levels, coupled with effective hiring and compensation policies, is crucial to achieving employment and manufacturing goals. “If we do that, then sooner rather than later, the second-quarter growth numbers will become a distant and fading memory,” he added.

The CEA also noted uncertainties in the export sector, citing potential policy developments, monetary policy risks in advanced economies, and the volatile global trade environment. He flagged concerns over the strength of the dollar and the impact of cheaper imports on domestic industries.

However, Nageswaran expressed optimism about the economic benefits of low global crude oil prices, which support economic activity and price stability.