The government's economic review says that India's economic growth will be sustained by a rebound in consumer spending.

India's Economic Growth Will Be Sustained By Rebound In Consumer Spending.

Sharp rebound in consumer spending and rising employment will sustain economic growth in India in the months ahead.

Private consumption, which accounts for about 60% of India's GDP, has been the key driver of growth in recent quarters. It grew by 7.5% year-on-year in Q1 FY2019-20 and is expected to remain strong in the coming months on the back of favorable monsoon rains, lower fuel prices, and implementation of government schemes such as Ayushman Bharat. Additionally, capacity utilization rates have risen to 77%, indicating that there is scope for further expansion in output.

Rising employment levels are also supportive of private consumption growth. The labor force participation rate increased to 42.7% in FY2018-19 from 41.8% in the previous fiscal year. This was driven by an increase in female labor force participation, which rose to 27.3% from 25.8%. The unemployment rate declined to 6.1% in FY2018-19 from 6.9% in the previous fiscal year.


Private Consumption and Higher Capacity Utilisation Rates Have Helped Private-Sector Capital Expenditure Reach One of Its Highest Levels in the Last Decade.

Business investment has been encouraged by government spending.

Private consumption in India has picked up sharply in recent months, helped by higher capacity utilisation rates and an increase in business investment. These trends have led to a rebound in private-sector capital expenditure (CAPEX), which has reached one of its highest levels in the last decade. The government's economic review for August noted that CAPEX as a percentage of GDP had risen to 35.6% in FY2017-18 from 33.6% in the previous fiscal year. This is a positive development, as private investment is crucial for sustaining economic growth.

Government spending has also played a role in boosting CAPEX. The review said that government expenditure on infrastructure had increased significantly, which had helped crowd in private investment. The government's focus on infrastructure development is part of its efforts to boost economic growth and create jobs. In the last few years, the government has announced several initiatives aimed at boosting infrastructure spending, including the launch of the Bharatmala project and the setting up of a National Investment and Infrastructure Fund (NIIF). These initiatives are expected to help attract more private investment into infrastructure projects.


The Report Also Said High Levels of Foreign Exchange Reserves, Sustained Foreign Direct Investment and Strong Export Earnings Have Provided a Reasonable Buffer Against Monetary Policy Normalisation in Advanced Economies.

The Reserve Bank of India on Friday forecast the country's current account deficit would remain within 3% of gross domestic product in the current fiscal year to March 2023.

RBI Governor Shaktikanta Das said that the central bank is comfortable with the current level of foreign exchange reserves, which can cover more than 11 months of imports. The government has also taken steps to attract foreign direct investment (FDI), he said.

Das added that while there has been a recent pick-up in FDI inflows, they are still below potential. He also said that strong export earnings have contributed to the country's economic growth and provided a buffer against monetary policy normalisation in advanced economies.


India Is In a Better Position to Calibrate Its Liquidity Levels Without Abruptly Stalling Growth.

Inflationary pressures in the country appear to be declining.

One of the key risks to India's economic growth is the potential for a sharp increase in interest rates as the US Federal Reserve begins to normalize monetary policy. However, the Indian government's decision to allow greater flexibility in the management of its currency exchange rate has helped to insulate the economy from some of the adverse effects of this process. Additionally, high levels of foreign exchange reserves and strong export earnings have provided a buffer against any sudden outflows of capital.

Inflationary pressures in the country appear to be declining, giving the Reserve Bank of India (RBI) more scope to cut interest rates and support growth. The RBI has already cut rates twice this year, and further cuts are expected in the months ahead. This will provide a boost to private consumption and investment, helping to sustain economic growth.


Geopolitical Tensions Could Climb Amid a Heightened International Focus on Energy Security and That Could Test "India's Astute Handling of Its Energy Needs So Far."

Geopolitical tensions have been on the rise in recent months, with a number of high-profile incidents taking place around the world.

These tensions could have an impact on India's economy, particularly if they lead to a rise in oil prices.

Subsection 5.3 India has so far handled its energy needs astutely, but any further increase in geopolitical tensions could test this.