Question: In the first quarter of the financial year 2025–26, India’s economy grew at a rate of 7.8%, the highest in five quarters. Discuss the key drivers of this growth and the challenges ahead. (250 words)
Answer:
In the first quarter (April–June) of FY 2025–26, India’s GDP grew at 7.8%, the highest in five quarters and well above the RBI’s projection of 6.5%. This strong performance reflects resilience in domestic demand as well as sectoral momentum.
Key Drivers of Growth:
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Manufacturing (7.7%) – Despite a high base, industrial output remained strong, supported by investment and policy reforms.
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Construction (7.6%) – Infrastructure projects and housing demand gave a steady push to the sector.
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Services (9.3%) – Financial services, trade, hotels, transport, and communication posted two-year highs, reflecting robust consumer activity.
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Public administration and defence (9.8%) – A surge in government expenditure contributed to this acceleration.
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Policy measures – Cuts in indirect taxes and expectations of festival demand boosted aggregate demand.
Challenges Ahead:
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External shocks: The recent 50% tariffs imposed by the U.S. could adversely impact export-oriented industries.
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Global uncertainty: Sluggish trade and geopolitical risks may reduce investment inflows and export earnings.
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Utilities slowdown: Electricity, gas, and water supply grew by only 0.5%, highlighting infrastructure bottlenecks.
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Domestic demand fluctuations: Temporary slowdown in consumer spending before the GST Council meeting and stress in rural income may affect consumption.
Conclusion:
India’s 7.8% Q1 growth reflects strong fundamentals, but external trade pressures and sectoral weaknesses cannot be ignored. A policy focus on export diversification, infrastructure strengthening, and domestic demand stimulation will be crucial for sustaining high growth in the coming quarters.
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