Going against the world headwinds, India's economy is likely to grow at 6.5 per cent during the ongoing financial year, though risks are high from the United States' recent tariff increases, a report by Crisil said.
During the first quarter of the current fiscal, India's real GDP grew robustly by 7.8 per cent year on year, from 7.4 per cent in the last quarter of the previous fiscal.
Growth on the demand side recovered 7.6 per cent, led by the services sector, with a statistical low-base effect also kicking in. The manufacturing sector benefited from cheaper input costs in the backdrop of increasing domestic demand and advanced export shipments," said Dipti Deshpande, Principal Economist, Crisil.
Strong consumer spending, aided by improved rural incomes, softening inflation, reduced interest rates, and tax concessions, will continue to drive the growth pace in the next few quarters. Fiscal capital spending will also continue to be a firm support to the economy.
On the demand side, consumption by households rose to 7 per cent from 6 per cent and was the main driver of growth. Government spending also picked up speed, with government consumption and investment both reporting significant improvement.
One strong thrust came from increased capital spending by the Centre and states, which rose 27.8 per cent from a year ago in the quarter. Also, export growth pre-emptive of the US tariff hikes offered short-term support.
Yet, India's export edge would disappear in the subsequent quarters due to the US's 50 per cent tariff increases. Simultaneously, a general slowdown worldwide instigated by the tariff moves will further weaken external demand," Deshpande said.
The report also warned that high tariffs and increasing uncertainty would weigh down private sector investment in India this year. Global trade headwinds and geopolitical tensions are likely to impact various sectors disproportionately.
Without a trade pact between India and the US, some sectors might feel the heat more intensely. Among the most hit will be micro, small and medium enterprises (MSMEs), which account for close to 45 per cent of India's overall exports, Crisil said.
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