Latest GDP Data: The Big Picture is Bright

Why in News?

• According to the National Statistical Office (NSO), India’s GDP recorded a higher-than-expected growth rate of 6.1% in January-March 2023 pushing up the growth estimate for full year 2022-23 to 7.2%.
• This is higher than NSO’s advance estimates of 7% for 2022-23.

 

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.

 

Latest GDP Figures

• Contrary to market perception, GDP growth came in higher at 7.2 per cent in 2022-23.
• The largest revisions happened in the fourth quarter estimates, with growth recorded at 6.1 per cent, and gross value added (GVA) at 6.5 per cent.

 

Factors Contributing to High Growth Rate

• The Agriculture Sector: It grew at a robust 5.5 per cent in the fourth quarter, with growth for the full year estimated at 4 per cent.
• Manufacturing
  • During the last financial year, manufacturing exhibited muted growth of 1.3 per cent. It has picked up pace in the fourth quarter, growing at 4.5 per cent.
  • Analysts have attributed this pick up to an improvement in both volumes and corporate margins.
• Construction
  • Another labour-intensive sector, has also registered a healthy performance, with growth for the full year being estimated at 10 per cent.
  • The healthy order book position of the sector (around Rs 7 trillion for 9 construction players) reflects the medium-term revenue visibility and improvement in rural employment.
  • In 2022-23, basic chemicals, roadways and real estate accounted for 53 per cent of new investment announcements.
• Within services, hotels, transport, and communications sector has maintained its growth momentum.
• The financial, and professional services sector has seen a sustained pickup over the year.
• Credit growth of scheduled commercial banks remained strong at 15.5 per cent.
  • The sector-wise credit data for April indicates that credit is 2.8 times higher than in April last year.
  • The credit-to-GDP gap has narrowed, reflecting improved credit demand in the economy in the face of rising capacity utilisation.

 

Areas of Concern

• Share of Consumption in GDP
  • Private consumption grew by only 2.8 per cent in the fourth quarter, marginally higher than 2.2 per cent in the third quarter, reflecting in part the subdued performance of the consumer durables segment in the index of industrial production. 
  • Govt. consumption has also remained weak. It registered a growth of 0.1 per cent.
• Sales of domestic two-wheeler and diesel consumption have been showing traction in recent months, while tractor and fertiliser sales have moderated.

 

Reason of Less Total Consumption

• Lagged response of rural consumption to the opening of the economy.
• Rural consumption was affected due to elevated inflation.
• Rising interest rates and higher borrowing costs.

 

Potential Challenges to India’s Growth Prospects

• Slowing Global Economy: As per the IMF’s World Economic Outlook released in April 2023, the global growth for 2023 is expected to be 2.8 per cent.
• Rising debt levels; especially in low and middle-income countries.
• Banking sector collapses in the US and Europe could affect the global financial system.
• The onset of a potential El Nino event leading to a possibility of deficient rainfalls during the South West Monsoon season proves to be a threat to kharif crop production, which can impact India’s growth prospects.

 

Possible Respite

• Slight moderation in monetary policy tightening by central banks globally opens the possibility of easing pressure on non-dollar currencies.
• The recent reduction in global commodity and food prices and easing of pass-through from high input cost pressures also serves as a positive sign, especially for the manufacturing sector.
• Inflation is likely to moderate significantly in the ongoing year, and a sub 5 per cent reading will now be the norm till at least October.
  • The correction in core inflation will ensure that non-food, non-energy items feeding into manufacturing through input prices become less of a concern.
  • The wedge between the correction in CPI and WPI inflation will determine pricing power over the year.
• Domestic measures such as business-friendly policy reforms (such as the Foreign Trade Policy of March 2023), as well as an increase in government capital expenditure, are expected to attract private investment and boost India’s growth prospects in the coming years.

 

Why the Big Picture Seems Bright

• The Strength of Indian Economy is Intact: The latest robust growth numbers are indicative of the Indian economy’s resilience despite global uncertainties, and provide a positive outlook.
• The rebalancing of demand from private consumption to investments will spur growth once consumption picks up.
• Private investment activity looks robust and domestic monetary conditions remain supportive of growth in 2023-24.
• Some additional factors
  • The number of GST registrations is about 1.4 crore, whereas the current MSME units registered under Udyam have reached 1.87 crore.
  • The gap between the two indicates the extent of further formalisation. As these enterprises are brought into the formal system, this could lead to a credit boom for these smaller firms.
• This indicates that growth is likely to overshoot RBI’s estimate of 6.5 per cent.

 

Conclusion

• The broad picture that emerges from the data is that the overall strength of the Indian economy remains intact.
• India’s ability to withstand challenges depends on key timely interventions and structural reforms that continue to prove its resilience in the medium as well as long term.

 

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Q1) What is the difference between Private Consumption and Government Consumption?

The private consumption includes consumer spending on goods and services. The government consumption consists of government spending on goods, services, and investment. The disposable income is calculated by subtracting total government tax revenue from national income.

 

Q2) What is the reason behind the banking sector collapse in the US and Europe?

The turmoil is part of the fallout after central banks, including in the US and UK, raised interest rates sharply last year to try to dampen down rising prices. After years of very low interest rates, that has come as a shock. Banks holding debt issued when interest rates were lower have seen the value of those assets tumble. When customers panicked and started taking out their money, their balance sheets were not strong enough to withstand the moves.

 

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Source: The Indian Express