India’s GDP growth is impressive, but can it be sustained?
- it will be important for the new government to ensure that the benefits of high growth trickle down to the lower income categories
- India’s GDP data was keenly awaited, Indeed, it has surpassed market expectations, with a growth of 8.2 per cent in 2023-24 as against 7 per cent in 2022-23.
KEY HIGHLIGHTS
- It is to be noted that the growth in 2023-24 is much higher than MOSPI’s second advance estimate of 7.6 per cent.
- While overall GDP growth is impressive, it is important to understand some of the nuances of the data to infer the sustainability of the growth this year.
- Another important point is the sharp divergence of 1 percentage point between GDP and GVA growth in 2023-24.
- This is mainly because of sharp growth in net taxes (due to higher tax collection and lower subsidies). This has also aided in pushing up the GDP growth.
- If we look at the sectoral break-up, as expected, overall agriculture value added growth has been muted, given the poor monsoon last year.
- Supported by lower input prices, manufacturing GVA has shown a healthy recovery, with growth of 9.9 per cent in 2023-24.
- While services sector growth has been healthy at 7.6 percent.
- The construction sector has remained robust, recording a growth of 9.9 per cent
GDP Expenditure Side:
- If we look at the break-up of GDP from the expenditure side, we find that the overall GDP growth is not very broad-based.
- Private consumption, the main pillar of the economy, has grown by a feeble 3.8 per cent in 2023-24. This is the slowest consumption growth rate in the last two decades (excluding the pandemic year contraction).
- Investment, the other pillar of the Indian economy, has grown by a healthy 9 per cent. Investment in the economy has been mainly led by the government sector.
- Central government’s capex has grown by a healthy 28 per cent in 2023-24,
Growth and Exports:
- The third pillar of India’s economy has been muted due to weak global growth.
- While India’s services exports have remained healthy, merchandise exports specifically felt the pinch of global slowdown.
- We can expect India’s GDP growth to moderate. However, it is estimated to be still healthy at around 7 per cent this year.
- For the growth momentum to be sustained, the most critical aspect would be an improvement in private consumption.
- While the higher income category has been spending, the lower income category remains cautious amidst high inflation and low wage growth.
- Rural demand had also been weak due to poor monsoon last year.
- With normal monsoon expected this year, we can expect a revival in rural consumption demand.
- Moderation in food inflation will be another prerequisite for rural consumption revival.
- Improvement in the employment scenario will also be an important piece for consumption revival.
- Improvement in the employment situation in the unorganised sector will also be critical.
- A pick-up in the private capex cycle is another important requirement for sustained growth momentum.
- The private sector is showing increasing intent to invest, as reflected by the CMIE data on investment projects announced.
- Of course, a sustained revival in consumption demand would be most critical for private investment to pick up meaningfully.
Global Scenarios
- With the global growth outlook improving, India’s exports are likely to improve.
- However, with geo-political tensions brewing, the risk of supply shocks continues.
- The recent uptick in global commodity prices, specifically industrial metals prices, could adversely impact the Indian economy through higher input cost.