“There is momentum in economic activity in general, and it is not driven by price-related distortions. Therefore, our projections are still very comfortably placed at 6.5% for the current financial year,” he said, pointing to several high-frequency indicators to argue that the September quarter has gotten off to a good start. With 7.8% growth in the June quarter, the Indian economy was the fastest growing major economy – higher than the 6.3% clocked by China and 5.2% by Indonesia.
Some of the confidence stems from a revival in rural demand, which he showed through some charts in his presentation – highest growth in FMCG sales in eight quarters, improvement in tractor & two-wheeler sales and a growth in non-durables (based on IIP numbers). Besides, he said that private sector investment was adding to government capex and that new investment projects announced by the private sector in the first quarter have been the highest in 14 years. The government’s chief economist, however, did advise caution on the monsoon front, given that this August has been the driest in over a century and overall rainfall is expected to be “below normal”. Due to weak reservoir levels, prices of commodities have to be watched, Nageswaran said, adding, “there is no real possible concern that inflation will spike out of control.”
He expects food prices to moderate with the arrival of new farm produce – resulting from steps taken by the government in recent weeks to ensure an adequate supply of rice, wheat, and onions. A reduction in cooking gas prices is also expected to help. While acknowledging a spurt in inflation in June and July, when retail inflation reached 7.4%, the government believes that India is better off compared to other economies. “Food inflation was dominated by specific commodities. So, there is no real cause for concern that inflation would spike out of control,” he said.