GDP growth: India’s latest economic data stirs up a range of emotions
- Updates to estimates of GDP growth in past years might evoke euphoria, while our current economic impulses may justify some anxiety. A Gordian knot in the economy needs to be cut. Here’s an idea.
Hard data is supposed to be cold and impersonal but also has the capacity to evoke myriad feelings. Consider the series of national-accounts data released on 28 February: India’s gross domestic product (GDP) for the quarter from October to December 2024, second advance GDP estimates for 2024-25, first revised estimate for the previous year and the final estimate for 2022-23.
The numbers stir euphoria over upgrades to old data: GDP growth stands revised to 9.2% for 2023-24 and to 7.6% for 2022-23. Then there is relief that the second advance estimate for 2024-25, the current year, has GDP growing by 6.5%, higher than the 6.4% estimated earlier.
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Yet, some anxiety seems inescapable when this number is viewed against the 6.2% figure for the third quarter of 2024-25; the economy must grow by 7.6% in the fourth quarter to attain 6.5% growth for the full year. In the face of street scepticism, chief economic advisor (CEA) V. Anantha Nageswaran has expressed confidence in a last-quarter consumption revival, buoyed by religious tourism, which would help the economy achieve that uptick.
As it happens, the data also provides a line of sight into some of the economy’s lingering structural deficits. Growth impulses have been dampened by a prolonged absence of ‘animal spirits’ in the private sector, as seen in its pronounced apathy to domestic investment.
Growth in gross fixed capital formation slowed down further to 5.7% in this year’s third quarter (against 6.7% in the first and 5.8% in the second), necessitating capex growth of almost 6.4% in the last quarter to enable the overall economy to grow 6.5%, which is somewhat over-optimistic at this juncture.
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The CEA has expressed consternation over the private sector preferring to invest overseas amid high global uncertainty instead of responding to the government’s front-loading of capex at home in recent years. If private businesses have been voting with their feet, despite the rising tide of global risks, administrators need to study the reasons for their ebbing confidence in India’s economy.
Is it excessive red tape, lack of structural reforms, high interest rates or a proliferation of structures that have a deflationary effect on competitive spirits?
It could be a combination of all those factors, but another reason has become manifest: the manufacturing sector’s capacity utilization has been stuck at 70-75% for the past decade. Without a sustained rise in this, private industry will be reluctant to invest in fresh capacity.
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This stems from a protracted lack of demand in the economy, barring the occasional (mostly festival-induced) spikes in private final consumption expenditure, and reflects job scarcity as much as stressed personal earnings. This is also evident in savings data: India’s gross household savings rate has declined sharply from 23.6% of GDP in 2011-12 to 18.1% in 2023-24 without a corresponding rise in consumption.
The economy thus seems stuck in a doom loop: without a boom in employment and incomes, consumption and savings are unlikely to rise, thereby inhibiting the propensity of businesses to invest—which only prolongs the jobs crisis.
The government could cut this Gordian knot. Given the severity of the problem, it may need to expand its payrolls directly as well as through public sector institutions. This might be a sub-optimal solution, and a stop-gap at best, but desperate times demand novel solutions.
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