By Milounee Purohit and Devayani Sathyan
BENGALURU, November 27 (Reuters) – India’s economic expansion likely moderated but remained strong in the September quarter, supported by robust services activity and solid urban demand despite a global slowdown slowing export growth, according to a Reuters poll of economists.
Gross domestic product (GDP) growth is forecast to slow to 6.8% in the July-September quarter from 7.8% in the previous quarteraccording to the average forecast of 55 economists surveyed from November 17 to 27.
But forecasters see that as a small slowdown from an exceptionally strong quarter for Asia’s third-largest economy, which is expected by the same group of economists to grow more than 6.0% over coming years, currently the fastest among major economies.
Even as an erratic monsoon led to a surge in inflation last quarter, consumer demand – which contributes about 60% of GDP growth – remained strong in a country of more than 1.4 billion people, largely driven by urban dwellers.
Forecasts for the data, expected on Thursday, ranged from 5.6% to 7.4%.
“Primary growth is likely to have remained robust … with utilities, services and construction showing strong growth. Domestic demand remains the key economic driver of activity as external demand continues to remain weak,” Rahul Bajoria at Barclays said in a note.
India’s GDP growth is forecast to average 6.4% this fiscal year ending March 31 and 6.3% in the following year, driven in part by higher government capital spending, according to the broader Reuters poll.
That expected growth would easily outpace most other economies, many of which have slowed dramatically after a historic series of central bank interest rate hikes to. tame inflation. The Reserve Bank of India’s efforts have been mild in comparison.
Capital spending was 4.91 trillion Indian rupees ($58.98 billion) in the first six months of the fiscal year, higher than 3.43 trillion rupees in the same period a year earlier. Economists predict that capital spending will increase even higher ahead of the national election scheduled for May 2024..
Asked what would be the main driver of economic growth for the rest of this fiscal year, economists were almost split between government spending (14) and consumption (13). Five said investment.
While rural demand took a hit in the July-September quarter due to higher prices for daily items, urban demand held strong. However, weakness in rural demand is expected to be short-lived.
A strong 69% majority of economists who answered a separate question, 20 out of 29, said the gap between rural and urban consumption will narrow over the next two to three years. Six said it would stay the same, and three said it would expand.
“We expect private consumption growth to recover further as it narrows the gap between rural and urban demand and between goods and services,” Upasana Chachra, chief India economist at Morgan Stanley., said in a note.
Chachra said improvement in purchasing power as core inflation moderates would help rural consumption.
($1 = 83.2440 Indian Rupees)
(Reporting by Milounee Purohit and Devayani Sathyan; Polling by Sujith Pai and Susobhan Sarkar; Editing by Ross Finley and Jamie Freed)
((Milounee.Purohit@thomsonreuters.com; Devayani.Sathyan@thomsonreuters.com))
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