GDP growth in Q1 fell marginally short of the 8% projection by RBI. But this is likely to remain on course to meet the 6.5% target for 2023-24. Private consumption grew slower than the economy, and government consumption declined. Investment grew on trend with the economy. Net exports widened as exports shrank and imports grew above trend. Sectorally, agriculture and services accelerated as manufacturing, mining, utilities and construction slowed down from a year ago. These movements need to be read with the caveat of a normalising base effect.
The economy is pushing ahead on government-led capex and credit-driven consumption. Growth would have been subdued without either of these stimuli. Revival of private investment could push up credit costs, affecting consumption demand. Episodic flare-ups in inflation also exert pressure on interest rates. Tapering government capex, an uneven monsoon and commodity prices coming off their high base weigh on downside risks to growth in subsequent quarters. Improving profitability and capacity utilisation hastens a revival of private investment, providing upside to full-year growth projections.