India has recorded an economic growth rate exceeding government forecasts in the first quarter of this year (January to March). During the same period, government expenditure significantly decreased, which analysts say reflects a strategic decision to secure fiscal soundness.
According to Hana Securities on the 3rd, India's gross domestic product (GDP) growth rate for the first quarter of this year is 7.4%, surpassing the government's forecast of 7.2%. While all institutional sectors showed a favorable trend, Hana Securities explained that the construction sector experienced high growth, particularly due to the expansion of fixed asset investment, leading the overall economic growth.
However, despite the high growth rate, government expenditure fell significantly by 1.8% compared to the same period last year, raising concerns about a slowdown in growth.
Kim Geun-a, a researcher at Hana Securities, noted that "private consumption accounts for 60% of GDP in India, but the main consumption drivers are concentrated among rural and low to middle-income groups, so the expansion of government expenditure directly impacts the improvement of consumption conditions," adding that "the decrease in government expenditure could weaken the momentum of private consumption and economic growth."
However, this reduction in government expenditure is viewed by Kim as a strategic adjustment rather than a structural slowdown. It is considered a temporary adjustment for managing the fiscal deficit ratio.
Kim further explained with two points that the policy stance is still growth-oriented, noting that "the expenditure centered on infrastructure investment is being maintained," which balances economic growth and fiscal soundness.
First, fixed investment in the first quarter increased by 9.4% compared to the same period last year. While the government sector's share of infrastructure investment rose by 0.6 percentage points (p), the private sector fell by 1.0 percentage points (p). This indicates that the main contributor to the increase in fixed investment is the government, not the private sector.
Second, looking at the detailed items within government expenditure, current expenditure (Revenue) decreased by 5.1%, while capital expenditure rose by 33.4%. This is interpreted as a result of temporarily reducing operational expenditures to achieve this year's fiscal deficit ratio target of 4.8%.