The GDP Surprise: India on the Up and Up

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The GDP Surprise: India on the Up and Up Blog Image

Why in News?

  • The Indian economy expanded by a staggering 7.6 per cent in the second quarter of the ongoing financial year. The economy has now grown at 7 per cent plus for two straight quarters.
  • This raises a serious question over the accuracy of forecasts that have been continuously casting doubt on India’s macroeconomic resilience post the pandemic.

Major Factor Behind the Growth Rate: Manufacturing Sector

  • The manufacturing sector grew at a robust 13.9 per cent in the second quarter, compared to 4.7 per cent in the first quarter.
  • Growth in the second quarter was at a nine-quarter high.

Contributing Factors to Manufacturing Uptick

  • This uptick in manufacturing is triggered by a group of policy initiatives, ranging from steady government capital expenditure, the PLI scheme (ensuring export competitiveness in specific sectors).
  • Also, the formalisation drive in both MSMEs (Udyam) and the labour force (e-shram), and the stabilisation in incremental credit deployment helped manufacturing sector and it gained momentum.

Analysis of Other Contributing Factors

  • Corporate Financial Health and Bottom-Line Growth
    • The corporate books remain healthy, indicating stability and resilience in the business sector.
    • The bottom line has shown impressive growth, recording a 31% increase in the second quarter, consistent with the robust 30% growth observed in the first quarter.
    • The growth in the bottom line has outpaced the top-line growth, indicating effective cost management or increased efficiency in operations.
    • This suggests that companies are not solely relying on increased revenue but are also optimising their operations to enhance profitability.
  • Broad-Based Growth
    • The growth observed is broad-based, indicating that various sectors within the corporate landscape are experiencing positive trends
    • This diversified growth is a positive sign for overall economic health.
  • Noteworthy Growth in FMCG Sector: The FMCG sector, often considered a barometer of rural consumption, reported a noteworthy 5% revenue growth.
  • Stellar Turnaround in Rural Demand
    • The positive performance of the FMCG sector is indicative of potential improvements in rural demand and consumption trends.
    • This shift is a positive signal for the broader economy, as rural areas are crucial contributors to overall economic activity.
  • Historic Capex Intentions
    • In the fiscal year 2022-23, historic capex intentions have been witnessed, with new investment announcements reaching Rs 37 lakh crore.
    • This marks a substantial increase from Rs 20 lakh crore in the previous fiscal year (2021-22), indicating a significant boost in planned capital expenditures.
    • The surge in capex is notable for increased private sector participation, signalling confidence and active involvement from non-government entities in economic development.
  • Key Industries Witnessing New Investment Announcements
    • These include roadways, iron and steel, basic chemicals, real estate, non-conventional energy, electronics, automobiles, hydel-based power, data centres, and power distribution.
    • The diversity of sectors involved suggests a comprehensive effort to stimulate growth across various segments of the economy.
  • Continued Investment Momentum: In the first half of the year, investment momentum persisted, with approximately Rs 15 lakh crore in new announcements, reflecting an 8% increase compared to the previous year.
  • Improved Corporate Balance Sheets
    • Sectors such as auto components, gas distribution utilities, telecommunication services, hotels, restaurants, leisure, retailing, and NBFCs are experiencing higher credit rating upgrades compared to downgrades.
    • This trend suggests that corporate balance sheets are showing improvement across these sectors, fostering a positive economic environment.
  • Agricultural Sector
    • Despite steady growth during the pandemic, the agricultural sector expanded by only 1.2% in the second quarter.
    • Subdued growth is anticipated due to factors such as a weak monsoon, leading to lower-than-normal kharif crop output and delays in harvesting, impacting rabi crop sowing.
    • However, the share of allied activities within the farm sector, including dairy and fisheries, has increased from 34.6% in 2011-12 to 46.1% in 2021-22.
    • This diversification is seen as a positive sign, providing a counter-cyclical buffer, and reducing dependence on farm income.
  • Transformation in Agri Financing by Banks: Banks have started financing the entire agri value chain, with agri loans increasing by 15.4% in 2022-23, compared to around 10% in the previous two years.
  • Services Sector Growth
    • The services sector growth moderated to 5.8%, primarily due to low growth in trade, hotels, transport, and communication.
    • However, on a sequential basis, the sector expanded by 9%, exceeding the average 1.3% decline in the second quarter of every fiscal year until the pandemic, indicating a healthy performance.
  • Private Consumption Performance
    • Private consumption decelerated to 3.1%, potentially influenced by higher inflation.
    • On a sequential basis, growth increased by 2%, countering the typical 1% decline in the second quarter of every fiscal year until the pandemic.
  • Government Consumption and Investments
    • Government consumption and investments recorded healthy growth, with gross fixed capital formation increasing by 11%.
    • This growth is propelled by strong capital expenditure by both the Centre (49% of budgeted target) and states (32% of budgeted) in the first half of the current fiscal year.

Future of Economic Momentum in the Short to Medium Term

  • Positive Economic Indicators
    • Despite a historical downward bias in growth forecasts, the current assessment is more optimistic, with a forecasted GDP growth for the full year at 7%, up from the previous estimate of 6.7%.
    • The agricultural sector is experiencing challenges due to a weak monsoon, but the diversification into allied activities and increased financing for the entire agri value chain present positive signs.
  • Potential Risks
    • Global Economic Headwinds: The major risk identified is the potential impact of much softer global growth, with worsening consumer sentiments in the US and the Euro region.
    • Uncertainty Surrounding Consumer Sentiments: Consumer sentiments have worsened, adding an element of uncertainty to the global economic landscape. This could potentially impact demand for Indian exports and overall economic stability.


  • Despite global challenges, the Indian growth story is viewed as a beacon of hope.
  • The upward revision in GDP growth forecasts and the anticipation of strong momentum in the third and fourth quarters indicate a positive economic trajectory.

Q1) What is GDP?

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

Q2) What is CMIE?

The Centre for Monitoring Indian Economy (CMIE) is a private limited organisation that functions as both an economic think tank and a provider of business intelligence information. The CMIE research department has developed databases on India’s economy and private sector companies. CMIE uses a subscription-based revenue model to supply this data in the form of datasets and research papers. It is based in Mumbai and has offices throughout India.

Source: The Indian Express