GST reforms, festive season may spur demand: CEA V Anantha Nageswaran

The onset of the festive season and the proposed goods and services tax (GST) reforms could boost domestic demand in the coming quarters, chief economic advisor V Anantha Nageswaran said on Friday.

However, short-term risks to economic activity-especially exports and capital formation-persist due to uncertainties caused by the extra 50% US tariff that came into effect on August 27, he said.

Nevertheless, there would be adequate domestic consumption even during such times to encourage private players to keep investing, Nageswaran reckoned.

The CEA was briefing reporters after the GDP data showed a higher-than-expected 7.8% expansion rate in the June quarter.

Growth will remain within the targeted band of 6.3-6.8% this fiscal as projected in the Economic Survey in January, he said, ruling out a revision just yet despite the US tariff woes.

It's too difficult to gauge the precise impact of the US tariff on the Indian economy yet, he said. But the government is viewing the tariff as an opportunity to move forward with domestic reforms, deregulation and the diversification of the export markets, he added.

The latest data showed that India did not just stay as the world's fastest-growing major economy but also widened the gap with others, he said. China had the next best growth rate of 5.2% in the June quarter, followed by Indonesia (5.1%), US (2.1%), Japan and the UK (1.2% each), and France (0.7%).

'Broad-based growth'
Separately, a senior finance ministry official underscored the broad-based expansion of the economy in the June quarter.

"Supply-side growth was driven by manufacturing, construction, and services, reflecting an all-round growth. On the demand side, robust expansion in the private final consumption expenditure (7%) and gross fixed capital formation (7.8%) underpinned the performance," the official said. The government's capital expenditure, too, contributed meaningfully to the growth in investment.

'Momentum continues'
High-frequency indicators for July suggest a carry-forward of the June quarter economic momentum, CEA Nageswaran said.

The growth momentum strengthened in the June quarter, reflecting robust macro-economic fundamentals. Both the manufacturing and services sector boosted growth. "Consumption and investment continue to anchor growth," the CEA said in a presentation, adding that the share of private consumption in GDP in the three months to June was the highest for the same quarter in 15 years.