RBI Governor said - higher government subsidy expenditure will have an impact on GDP

On Wednesday, RBI Governor Shaktikanta Das stated concerns with the government's subsidies given under various schemes. He stated that while the Center's and the states' capital expenditures increase, the high cost of subsidies is concerning.

Das was speaking at the BFSI Summit held in Mumbai. He said that subsidy expenditure is very high and government expenditure in the first quarter is pulling down the GDP. The governor said, "Government expenditure has started increasing. Both revenue and capital expenditure of the Center and the states have started increasing. Subsidy expenditure remains an issue." He said that the government's subsidy payments have increased in the July-September quarter. The government has budgeted Rs 2,05,250 crore for food subsidy in FY25. This is 3% less than the revised estimate of Rs 2,12,332 crore for 2023-24. The government has also made a provision of Rs 24,475.53 crore for nutrient-based fertilizer subsidy for the Rabi season.

The Indian economy grew 6.7% in the three months to June, lower than the central bank's forecast of 7.1%. GDP estimates for Q2 2024-25 will be announced on November 29. Das said higher subsidy expenditure will have a bearing on GDP. "However, I think economic activity remains quite strong," the governor said.

The RBI also projected that the Gross Domestic Product or GDP growth rate during 2024-25 would be 7.2%. The IMF and the World Bank estimate that it may be 7.0 percent. Various global rating agencies and multilateral organizations have also revised their growth projections for India.

The Economic Survey tabled in Parliament early this year had "conservatively" estimated India's real GDP growth at 6.5-7% during 2024-25. India's GDP expanded by an impressive 8.2% during 2023-24, retaining its tag as the fastest-growing major economy. The economy had grown by 7.2% in 2022-23 and 8.7% in 2021-22.