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Finance Minister Nirmala Sitharaman expects India's GDP to recover in Q2 and Q3 2024, driven by higher government capital expenditure. Delays due to elections impacted Q1 growth, but expenditure is set to rise, boosting the economy.
Finance Minister Nirmala Sitharaman expressed optimism that India's economic growth will recover in the second (Q2) and third (Q3) quarters of the fiscal year, thanks to increased government capital expenditure. This statement was made at the News18 India Chaupal event, where Sitharaman discussed the country's economic outlook and the factors that influenced muted growth in Q1.
The Finance Minister attributed the slower growth in Q1 to delays in government spending caused by the election season. Election-related constraints limited the capital expenditure that typically drives growth, leading to lower-than-expected economic performance. However, Sitharaman reassured that this slowdown is temporary and the economy will see a significant boost as government spending ramps up in the coming quarters.
Sitharaman emphasised the importance of capital expenditure in stimulating the economy, particularly in infrastructure projects and development initiatives. With Q2 and Q3 expected to see a surge in capital spending, she expressed confidence that the GDP growth rate will improve, countering the slower performance of Q1. Increased expenditure on projects will help address concerns of slowing growth, as alleged by critics.
Despite the focus on increased spending, the Finance Minister maintained the government's commitment to fiscal discipline. She reiterated that the government is on track to reduce the fiscal deficit to 4.5% of GDP by the next fiscal year. This balance between capital expenditure and fiscal responsibility is central to the government's broader economic strategy.
Sitharaman also addressed the government's ongoing reform agenda, stating that systemic reforms will continue without interruption. Reforms related to taxation, pensions, and other welfare schemes remain in place, designed to create a more robust economic environment that supports long-term growth. Tax reforms, in particular, aim to simplify the system and provide relief to the middle class.
Regarding inflation and potential interest rate cuts, Sitharaman deferred to the Reserve Bank of India (RBI), acknowledging its role in balancing growth and inflation control. The RBI’s analysis will guide future decisions related to interest rates, with the broader economic outlook and inflation trends considered in the decision-making process.
Finance Minister Nirmala Sitharaman’s confidence in a better GDP performance in Q2 and Q3 underscores the critical role of capital expenditure in driving India’s economic recovery. The government's focus on increased spending, while maintaining fiscal discipline, sets the stage for a stronger performance in the coming quarters.
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