Government subsidy is a matter of concern, RBI Governor said – GDP may be affected

New Delhi| RBI Governor Shaktikanta Das expressed concern over the subsidies being given by the government under various schemes. He said that capital expenditure of the Center and states is increasing, but high subsidy expenditure is a matter of concern.

Das was speaking at the BFSI summit held in Mumbai. He said subsidy expenditure is very high and government expenditure in the first quarter is pulling down GDP. “Government expenditure has started increasing”, the Governor said. Both the revenue and capital expenditure of the Center and the states have started increasing. Subsidy spending remains an issue.”

He said payments for government subsidies have increased in the July-September quarter. The government has budgeted Rs 2,05,250 crore for food subsidies in FY25. This is 3% lower 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 Rabi season.

The Indian economy grew 6.7 percent in the April-June quarter, down from the RBI’s 7.1 percent forecast. GDP projections for the July-September quarter of 2024-25 (Q2 2024-25) will be released on November 29. Das said higher subsidy expenditure would have an impact on GDP. “However, I think economic activity remains pretty strong”, the governor said

RBI estimated India’s 2024-25 GDP growth rate at 7.2 percent. According to the IMF and the World Bank, it could remain at 7.0 per cent. Several global rating agencies and multilateral organizations have also revised their growth forecasts for India.

The Economic Survey, introduced in Parliament earlier this year, “conservatively” projected India’s real GDP growth for 2024-25 at 6.5-7 per cent. India’s GDP grew by an impressive 8.2 per cent during FY 2023-24, remaining the fastest growing major economy. The economy grew 7.2 percent in 2022-23 and 8.7 percent in 2021-22.