Why growth fell to 4.4%, and what is the way out?

What’s the reason for the slowdown?

GDP is the sum of private consumption expenditure, government expenditure, investment and net exports (exports minus imports). In India, private consumption is typically 55-60% of the GDP. During October-December it was 61.6%. Also, it grew by just 2.1% in comparison to October-December 2021. The slowdown in consumption growth seems to be because of the K-shaped economic recovery finally catching up with overall consumption. In a K-shaped recovery, the well-to-do continue to do well, whereas others don’t.

What’s the evidence of a K-shaped recovery?

Data from the Centre for Monitoring Indian Economy shows that net sales of around 3,300 non-financial listed companies grew by 14.9% during October to December. This is the slowest in two years. But on the whole, the formal part of the economy seems to be holding out. Within the formal part, there is evidence of segments not doing well. Take the case of Relaxo, a listed footwear manufacturer. Its sales during October to December fell 8.5% to ₹681 crore. This is primarily because sales in the up-to- ₹150 footwear segment have been negatively impacted.

Any other evidence of a K-shaped recovery?

Mobile tele-density has been falling for more than five years now. In October-December it stood at 82.6 (826 mobile connections for every 1,000 individuals). It had peaked at 92.1 during March-June 2017. Domestic two-wheeler sales stood at 3.9 million— 6% higher than October-December 2021, but 8.5% and 22% lower than the same period in 2019 and 2018.

What does all this data tell us on the whole?

There is a significant proportion of the population still struggling with the negative economic fallout of the covid-19 pandemic and this struggle can be seen in their consumption decisions. Unlike in earlier years, these decisions are now having a greater impact on the overall economy. This is primarily because the post-pandemic pent-up demand growth of the well-to-do seems to be slowing down from earlier levels, as can be seen in the sales of listed companies growing at their slowest in two years.

What can the Centre do to drive growth?

Investment growth during the period stood at 8.3%. But this has come on the back of a low base: investment growth during October-December 2021 had stood at 1.2%. Over a three-year period, it averages 4% per year. So, the government will have to continue to pump-prime the economy. During October to December, government expenditure contracted 0.8%. If India has to grow at more than 6% in 2023-24 as is being forecast, the government will have to continue playing an important role.