India’s growth rate inspiring but jobs and wages are challenges
The Indian economy grew by 7.2% in FY23, cracking past all previous estimates. The better-than-expected growth was led by Q4’s surprise print of 6.1%, prompting Asia’s third-largest economy to leap from despair to repair. Crucially, it reaffirms RBI’s observations of an even better FY24, thanks to strengthening domestic factors, softer global commodity and food prices, double-digit credit growth and easing inflation. Growth was variously pegged at 5.5%–6.5% for the current fiscal, but thanks to FY23 data, upgrades to baseline forecasts are underway. But it is essential to remember that none of the forecasters nailed it right recently. Be it growth contraction in FY21 or the correction in FY23, they all missed it in broad daylight. And given the nip and tuck nature of the global economy of late, FY24 national output, too, may well be full of suspense.
Wednesday’s data denotes all that’s going well for the Indian economy. On the expenditure side, private investments—the missing piece in India’s growth story until now—has finally shown proof of life. But if government spending slows down, all efforts to rebalance demand from consumption to investments will remain incomplete. Robust exports and lower imports helped growth as the trade balance was flat in Q4.
Private consumption was another dominant contributor to growth, but its weak pace is worrisome. On the production side, the agriculture sector retained resilience, and though IMD expects a normal monsoon, early heatwave-led crop damages raise concern. The services sector grew decently, as did the industrial sector, but manufacturing, which is the key to job creation, remains a weak link.
The secondary indicators of growth, like bank credit growth, show a jump due to an improvement in credit demand and disbursements across all segments except industry. But given RBI Governor Shaktikanta Das’ recent observations on the evergreening of bank loans, one must take credit growth metric cautiously. All said, a global slowdown and the lagged impact of rate hikes might weigh down domestic demand that drove growth in FY23. As it is, the unemployment rate, according to CMIE, is shooting past 8%, while SBI Eco Research notes that real wages grew by less than 0.5% y-o-y across all occupations. The economy must keep firing on all cylinders to ensure decent jobs and wage growth.