NEW DELHI: The first advance estimate of 2023-24 GDP has sprung a positive surprise, with the economy predicted to grow at 7.3% during the year. However, slow private consumption growth remains a cause of concern. Private consumption in FY24 is likely to grow at 4.4%, lowest in the past 20 years (barring the Covid year of 2020-21). This, despite the fact the GDP growth has been better than expected, raising fear that the growth is not reaching all sections of the society.
Data belies govt claims
The first advance estimates of FY24 GDP numbers by the National Statistical Office (NSO) belies the claims made by the RBI and the finance ministry. In its November monthly economic review, the ministry had claimed while urban consumption continued to grow, rural demand has shown a strong pick-up. “These trends signal continued momentum in coming months,” added the report.
RBI Governor Shaktikanta Das, when asked about slow uptick in rural consumption in his post-monetary policy press briefing on December 8, had told the media: “Despite late start, Rabi sowing had completed 2/3rd this season, two-wheelers sales have seen a turnaround this festive season with 20.7% growth over the previous year. FMCG sales in rural areas have shown steady demand since April of FY24 and in Q2 they have shown a growth of 6.4%. Demand for MNREGS for the first time declined in November this year by 4%.”
A different story
NSO numbers tell a different story. Private final consumption expenditure (PFCE), which signifies expenditure incurred by households on consumption of goods and services, is likely growing at 4.4% in FY24 as against 7.53% in FY23 and 11.23% in FY22. In the pre-Covid period, PFCE grew at 4.5% in FY20, 7.16% in FY19 and 6.9% in FY18.
With the expected slowdown in household consumption growth, economists fear the consumption growth is largely driven by high income households. As per Sunil Kumar Sinha, principal economist at India Ratings, ongoing consumption demand continues to be an area of worry due to its skewness in favour of goods and services which is demanded and consumed largely by the households belonging to upper income bracket.
“India Ratings says for a sustained PFCE growth, recovery in consumption has to be more broad-based where by a large contribution comes from goods and services consumed by households belonging to lower income bracket as well,” says Sinha, pointing out that the PFCE growth in FY24 would be the slowest since FY03 (barring the COVID year of FY21).
The government, as well as analysts, hopes rural consumption growth, which has lagged urban consumption in last couple of years, may see some uptick, going forward. The ministry says a rise in real rural wages, backed by a fall in inflation, has contributed to the strengthening of rural consumption. “Moreover, higher kharif output and enhanced minimum support price (MSP) have raised rural income, strengthening rural consumption,” says the ministry in its review for November. A research report by QuantEco, an independent economic research firm, seems to agree with the government on rural consumption uptick.
“…administrative measures like LPG price cut, sizeable upward adjustment in MSPs, extension of free foodgrain program etc appear to be supporting rural incomes. Fiscal support could galvanize further ahead of general elections,” says the report. Urban consumptio is likely to moderate due to continued high interest rates and the RBI crackdown on unsecured loans.
Investment Vs consumption
Indian economy has largely been supported by investment growth in the past couple of years. In absence of private investment, the government capex spending has been supporting the economy so far in the aftermath of the pandemic. Though, analysts see signs of private investment picking up. With private sector investments likely to go up, the government hopes that the next phase of economic growth would come largely from private investment, and consumption would continue to lag investment.
