India’s Growth Surprise

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Why in News?

  • India's economic trajectory has consistently defied expectations, with the National Statistical Office's second advance estimate revealing a robust 7.6 per cent GDP growth, surpassing earlier projections.
  • To understand the India’s growth surprise, it is crucial to assess the various facets of India's economic landscape.
  • Moreover, it is equally important to have an assessment of the factors contributing to the surprising growth, consumption patterns, savings dynamics, and investment trends.

Components Contributing to India’s Growth Surprise

  • Strengthening Economic Momentum
    • The initial estimate, released on January 5, pegged GDP growth at 7.3 per cent, setting a positive tone for the fiscal year.
    • However, the subsequent second advance estimate, incorporating additional data for the third quarter, surpassed these expectations.
    • This implies a strengthening economic momentum in the third quarter, further propelled by the gains from rising net taxes, which emerged as a notable contributor to the overall growth trajectory.
  • Rising Net Taxes and Subsidies
    • A crucial aspect of this growth narrative lies in the comparison between gross value added (GVA) and GDP growth.
    • While GDP growth stands at an impressive 7.6 per cent, GVA without the net tax impact registers a lower 6.9 per cent.
    • This nuanced distinction highlights the role of net taxes and subsidies in influencing the overall economic performance.
    • Moreover, considering the growth pattern throughout the fiscal year, the average growth rate for the first three quarters stands at an impressive 8.2 per cent.
    • Extrapolating from this, the implicit fourth-quarter growth projection is approximately 5.9 per cent.
  • Effective Policy Measures: Robust Banking System and Corporate Balance Sheets
    • Despite the resilience showcased in the GDP growth figures, it is crucial to acknowledge that real GDP is yet to reclaim its pre-pandemic trajectory fully.
    • However, the concerted efforts of domestic strengths and policy initiatives have brought the economy closer to a 7 per cent growth path.
    • A significant contributor to this achievement lies in the strengthened state of bank and corporate balance sheets, illustrating the effectiveness of strategic policy measures.

An Analysis of Challenges and Anticipated Slowdown

  • High Interest Rates
    • The persistence of high-interest rates poses a significant challenge to sustained economic growth.
    • Elevated interest rates can discourage borrowing and investment, impacting both consumer spending and corporate expansion plans.
    • This situation is particularly relevant as monetary policy's efficacy is constrained due to inflation projections remaining above the Reserve Bank of India's (RBI) 4% target.
  • Normalization of Net Tax Impact
    • The current fiscal year has seen a notable contribution to GDP growth from rising net taxes (taxes minus subsidies).
    • However, there is an expectation that the net tax impact on GDP will normalise in the coming year.
    • This normalisation implies that the boost provided by the net tax factor to the economic growth rate may diminish, potentially contributing to a slowdown.
  • Global Economic Conditions
    • India's economic performance is intricately linked to global economic conditions.
    • Uncertainties in the global market, including trade tensions, geopolitical factors, and external shocks, could have spill-over effects on India's economy.
    • As a result, external factors beyond the nation's control may influence the overall economic outlook.

Private Consumption, Household Savings and Changing Trends

  • Growth Disparities - Rural vs. Urban
    • Rural consumption is likely to have trailed urban consumption, primarily due to the disproportionate impact of high food inflation on rural households.
    • Agriculture, growing at a mere 0.7%, suggests a sluggish rural economy, where food inflation tends to affect discretionary spending more significantly.
  • Influence of Food Inflation
    • High food inflation has been a significant factor influencing consumption patterns, especially in rural areas.
    • The data suggests that nominal food consumption spending increased by 13% last year, indicating the inflationary pressure on essential commodities.
    • This trend is likely to persist, affecting purchasing power and discretionary spending in both rural and urban settings.
  • Shifts in Consumption Patterns
    • Household consumption expenditure data indicates a gradual transition towards non-food items over time.
    • This shift aligns with rising per capita income, reflecting changing consumer preferences and an evolving market landscape.
    • It also highlights the need to adjust weightages in the consumer price index basket, currently based on 2011-12 consumption patterns.
  • Household Savings: Composition of National Savings
    • The disaggregated data reveals that household savings constitute a substantial portion, accounting for 61% of total savings in the economy.
    • Despite being the largest component, its share in GDP has declined to 18.4% in 2022-23, indicating shifts in the composition of savings over time.
    • Household savings are further categorised into financial and physical savings.
    • Financial savings, encompassing instruments like bank deposits and securities, witnessed a sharp fall to 5.3% of GDP in 2022-23 from 7.3% in the previous fiscal year.
    • Physical savings, driven by borrowings for assets such as houses, have increased, reflecting changing preferences and market dynamics.

Analysis of Public, Corporate and Household Investment Trends

  • Private Corporate Investment Trends
    • The data highlights a stagnant trend in private corporate investments, with no definitive signs of revival in the fiscal year 2022-23.
    • This stagnation raises concerns as private sector investments are instrumental in driving economic growth, creating jobs, and fostering innovation.
  • Public and Household Investments
    • In contrast to private corporate investments, both public and household investments have shown significant growth in fiscal year 2022-23.
    • Public investments, often influenced by government policies and infrastructure projects, contribute to economic development.
    • Household investments, including expenditures on homes and durable goods, indicate consumer confidence and economic stability.

Way Forward

  • Reduce Policy Uncertainty
    • There is a need for the government to play a role in reducing policy uncertainty and compliance costs.
    • A stable and predictable policy environment is crucial for encouraging private sector investments.
    • Addressing these concerns becomes essential to create an environment conducive to long-term corporate planning and sustained economic growth.
  • Broad-Based Revival of Private Investments
    • The government must recognise the importance of a broad-based revival of private investments, and its critical role in sustaining high growth rates over the medium term.
    • While the government's focus on infrastructure and targeted schemes like PLI has shown positive results, a more comprehensive approach is necessary to stimulate investments across various sectors of the economy.


  • India’s surprising GDP growth, driven by resilient domestic strengths and strategic policy focus, sets the stage for a nuanced analysis of the various economic components.
  • As India navigates through these multifaceted aspects, attention to private corporate investments, consumption patterns, and savings dynamics will be crucial for achieving sustained and inclusive economic growth.
  • Moreover, the government's role in providing policy certainty and reducing compliance costs emerges as a key determinant for unlocking the full potential of India's economic prowess.

Q1) What is the meaning of Private Consumption?

Private consumption, also known as personal consumption or household consumption, represents the expenditures made by individuals and households on goods and services for personal use. This category includes spending on items such as food, clothing, housing, healthcare, education, entertainment, and other personal necessities and luxuries. 

Q2) What are the components and sources of funding for the Public Consumption?

Public Consumption includes government spending on public goods and services, such as defence, education, healthcare, infrastructure, and administrative services. Public consumption is funded through taxes and other sources of government revenue, such as borrowing.

Source: The Indian Express