BENGALURU (Reuters) – India’s economy will grow at a solid pace this fiscal year and next, according to a Reuters poll of economists, but they cautioned that key drivers such as job creation and household spending will only increase mildly over the next 12 months.
While Asia’s third-largest economy clocked 8.2% growth last fiscal year – the most among major economies – fueled by years of government spending, it failed to create enough well paying jobs for millions entering the workforce every year.
With private investment failing to pick up significantly in the last decade, millions of job seekers are pinning their hopes on getting a government job.
Economists cite weak household spending and a lack of reforms from the government as factors dampening private sector investment confidence and job creation, suggesting the benefits are increasingly funneled to only a select few.
India’s economic growth was expected to slow to 6.9% this fiscal year (FY), slightly lower than the International Monetary Fund (IMF) forecast of 7%, and decline to 6.7% next fiscal year and to 6.6% in FY 2026/27, according to a Reuters poll of 48 economists taken over Oct. 21-28.
“For economic growth to take off, consumption … needs to see an upturn,” Aditya Vyas, chief economist at STCI Primary Dealer Limited, said in an email.
“Deeper issues such as job creation, a strong increase in levels of private investment etc, need to be addressed … else, it will not go much above the average trend.”
After growth picked up slightly to 6.8% last quarter from 6.7% in the April-June period, it was expected to rise to 7% this quarter and next, in line with the long-term growth trend.
But most economists reckon the economy needs to consistently grow over 8% for a long period of time to create adequate jobs.
When asked what will happen to job creation in India over the next 12 months, 15 of 28 respondents said it will increase mildly, while nine said it will remain the same.
“With manufacturing struggling especially the MSMEs (Micro, Small, and Medium Enterprises), we do not expect any major improvement in the employment scenario in India,” Kunal Kundu, India economist at Societe Generale (OTC:SCGLY), said by email.
“A modest employment scenario, inadequate quality of job creation and still negative real wages suggest only modest growth in employment going forward. Consumption will likely continue to remain weak. This is a period of consumption normalisation as the phase of pent-up demand is over.”
While consumer spending, which makes up 60% of the economy, has picked up recently, rising inflation is forcing millions of households to cut back on food and dip into their savings to stay afloat, suggesting consumption will slow over coming months.
When asked what will happen to private consumption in India over the next 12 months, 19 of 28 respondents said it will increase mildly, while five said it will remain the same.
“There will be some cyclical recovery on private consumption. However, a large part of this increase is likely to come from a recovery on the rural demand side, which so far has been muted and was a big drag on consumer demand,” said Sakshi Gupta, principal economist at HDFC Bank.
“There is a very uncertain global environment that we are now moving into … that does bring an element of uncertainty as well as risk for domestic economic activity and job creation.”
(Other stories from the October Reuters global economic poll)
Source: Economy - investing.com
