Overall GDP growth surprises, but its parts remain uneven

While the headline number appears respectable, a cursory glance tells us that the growth is not broad-based yet.
Image used for representational purposes
Image used for representational purposesFile Photo

India's GDP growth rate is pegged at an enviable 7.6 percent for 2023-24, much higher than all consensus estimates. But a closer analysis confirms that the cheer good numbers are largely due to the downward revision of output in 2021-22 and 2022-23, which in turn led to an upward revision of the current year forecasts. Likewise, though the third quarter’s unexpected 8.4 percent growth quickened the pulse, it needs to be viewed with caution. The jump was not because of blistering addition of overall national output, but because of higher tax collections and lower subsidies. The current fourth quarter, which often sees subdued government spending, is expected at register 5.9 percent growth, which some believe is conservative. On balance, the Indian economy is certainly doing better than advanced and emerging economies despite global headwinds.

While the headline number appears respectable, a cursory glance tells us that the growth is not broad-based yet. On the production side, agriculture and allied sectors are flashing the biggest distress signal, having contracted in the third quarter, its revival is essential for overall poverty reduction. Worryingly, for the full 2023-24, the primary sector's growth is pegged at a dismal 1.2 percent, which partly explains the slack in private consumption. A pickup in demand in the third quarter was highly anticipated given the festive season, but it remained weak at 3.5 percent, against 7.1 percent the year before. On the other hand, private investment outpaced consumption, where industrial sector, led by manufacturing and construction, are contributing meaningfully to the growth momentum.

What we need is broad-based growth, where all sectors live up to their potential. Chief among them is private consumption, which accounts for a substantial 57 percent of the GDP. Given the weak consumer sentiment, its share to the overall GDP is likely to settle at a decadal low of 55.5 percent this fiscal, while the share of investments is expected to touch a decadal high of 34.1 percent. The growth momentum driven by investments, notwithstanding the contraction in government consumption, will likely continue over the next fiscal, which is good. But unless private consumption regains its appetite, the unevenness of growth would not subside. During 2023-24, it is estimated to grow by just 3 percent, against 4.4 percent estimated earlier. Undeniably, households are getting squeezed by stagnant incomes and high inflation. This is worrisome and needs urgent correction.

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