Friday, May 24

India’s ‘Khush Hua’ Moment: GDP UP, Core in a Tizzy


Sudden boost to India’s GDP in the fourth quarter of the financial year made it momentously different at 6.1 per cent or to 43.6 lakh crore, outpacing projections. It also pushed up the 2022-23 yearly growth to 7.2 per cent or Rs 160.06 lakh crore making it a standout performance, adding glitter to Prime Minister Narendra Modi’s nine years of celebration to a real “khush hua” moment.

The Reserve Bank of India had earlier projected the growth at 6.8 per cent. It is a level higher than its and the private projections. Agriculture was a surprise in the January-March rabi months growing 5.5 per cent, and construction surged to 10.4 per cent or Rs 3.9 lakh crore. India shines at a time when most major economies are struggling. India defies global factors, particularly in Europe and the US that are bogged down by the Ukraine war and difficult finances.

It is not true that India is not hit by the US sanctions but that is another story. The important factor for India is trying to make a mark. On the production side, finance, real estate and professional services in the last quarter grew by 7.1 per cent to Rs 7.6 lakh crore. It is a wonder. Has the fourth quarter done so significant a difference that one tends to believe the last few years of low growth phase is passe’ now! The figures look good also for the reason that two years back growth reached a nadir in terms of minus figures. Indians can make the difference and possibly the dream of being an engine of world growth once again looks not distant.

However, an expenditure side analysis shows that two key drivers of growth, consumption and investment seem to be in different directions. The private final consumption expenditure (PFCE) growth slowed down significantly over the course of the year. In the fourth quarter it grew by 2.8 per cent to Rs 23.9 lakh crore. It’s the second successive time it has grown less than 3 per cent. There is a distribution challenge. It has a link with the fall in quality of jobs. The women are sufferers as figures show growth in the number of unpaid helpers.

Another aspect adds to the concern. Overall key infra sector growth slows to a six-month low of 3.5 per cent in April. It may not all be so bright as it appears. It is due to a decline in the output of crude oil, natural gas, refinery products, coal and electricity. The core sector grew by 9.5 per cent in April 2022 while in March 2023 it fell to 3.6 per cent. It is the lowest at 0.7 per cent since October 2022 when the sectors expanded by 9.7 per cent. Even coal production declined to 9 per cent. Fertiliser production rises by 23.5 per cent, steel by 12.1 per cent and cement by 11.6 per cent.  The fall in coal and electricity production speak volumes about industrial activity.

The gross fixed capital growth (GFCF) expenditure continues to show robust trend. Part of it is on account of government push towards capex as capital expenditure increased by 24 per cent between 2021-2023. But it is not reflecting in private consumption. Capex often gets into demolitions too negating the impact to some extent. The RBI Consumer Confidence Surveys continue to show a negative trend. This is a key indicator of the overall well-being of the people.

The private consumption is showing an impact on manufacturing. Its gross value addition saw a contraction in three quarters. Overall rise over the year is1.3 per cent. Even the March 2022 figures grew by 0.6 per cent. The present growth has little to rave about. The manufacturing sector not doing well may have an effect in the future results. It is not showing the momentum seen in the Purchasing Manager’s Index (PMI).

This holds the threat of undermining one of the most encouraging aspects of the GDP data, the surge of investments. Capital formation grew by 8.9 per cent in the last quarter to Rs 15.3 lakh crore and was 35.3 per cent of the GDP, the highest since the pandemic. But private investment within the country and outside had not been robust possible perhaps because low consumption factor.

Despite facing challenges from an uninspiring global outlook, India’s growth momentum is likely to be sustained in 2023-24 amid easing inflationary pressures, the RBI said in its annual report for 2022-23. For 2023-24, real GDP growth is projected at 6.5 per cent with risks evenly balanced. The economy is expected to expand at 7 per cent in 2023.

Chief Economic Advisor V Anantha Nageswaram expressed happiness at the trend. He says that the services sector has maintained its growth marks. He says much of the elasticity is coming from construction activities. This is the catch as well. It indicates that many other sectors may not be doing as well as they are expected.

The government has been able to meet its fiscal deficit at 6.4 per cent, much higher than RBI tolerance limit, though it is in line with the revised budgetary estimates of 2023-24.  The inflation rate fell to 4.7 per cent in April.  It says the deficit in absolute terms is Rs 17.3 lakh crore against Rs 17.5 lakh crore in the previous year. There is one catch. This figure is above a very high inflationary trend. It means that overall performance of the economy in real terms might be less than what is being claimed. If it moves as expected, fiscal deficit target could come down to 5.9 per cent.

Morgan Stanley says that India has transformed in a decade and gained positions in the world order. However, it says that there is scepticism with overseas investors, “who say India has not delivered its potential despite it being the second fastest growing economy”. The report highlights ten big changes. These include supply-side policy reforms, formalisation of the economy, real estate regulation and development law, digitalising social transfers, insolvency and bankruptcy code, flexible inflation targeting, focus on FDI, government support for corporate profits and MNC sentiments at an all-time high.

In the light of this, industry has pinned high hopes on the RBI. It remains to be seen how RBI acts at the Monetary Policy Committee meeting on June 6. It is a tussle. Industry wants low rates and depositors an increase. So would the RBI be a hawk or a dove? Nation keenly awaits the moves.—INFA


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