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India’s GDP data reveals some disquieting details

Photo: Mint
Photo: Mint

Summary

The headline figure points to healthy growth, but weakness in private consumption and farm growth that isn’t validated by other indicators calls for attention of our policymakers

In the absence of any alternative measurement yardstick, gross domestic product (GDP) has become the optimal, albeit imperfect, statistical tool for measuring an economy’s performance. Alternative indices have been proposed in the past (such as a human development index), but GDP has this incredible capacity to demonstrate which specific parts of the economy are humming and which ones are operating sub-par. India’s gross domestic product (GDP) for 2022-23, released on 31 May, shows a year-on-year 7.2% growth, thereby exhibiting a sharp rebound from the stasis that had set-in pre-pandemic and was reinforced by the pandemic. The strong showing is on the back of smart services growth, with tourism and hospitality-related services showing a brisk 14% growth, construction following close behind at 10%. The robust 7.2% growth in the economy has come at an opportune moment and will hopefully manage to extinguish growing national despair over price rise and shrinking job opportunities.

But that alone might not be able to douse all the misgivings because there are small wrinkles in the data, and the array of risks for the near term seems somewhat immutable. Drilling down into the data generates disquiet about some individual components. Personal final consumption expenditure is an indicator of demand emanating from households, the Indian economy’s bulwark. Disconcertingly, the share of private consumption in GDP has been shrinking over the past two years and 2022-23 saw a continuation of the trend; what makes it doubly unsettling is that the share has been falling even when the overall pie (GDP) has grown. It can be argued that any shortfall in private consumption can be balanced by growth in investment demand, or gross fixed capital formation, which has indeed managed to cushion the visible slowdown in consumption demand this time. What, however, needs to be kept in mind is that a large chunk of this is likely to be investment expenditure by the government rather than private enterprise. Typically, government pump-priming works only when private enterprise also joins in.

There are other bugs as well that hold a mirror to some of the risks in the near future. Data from the production side shows that agriculture, forestry and fishing grew by 4% during 2022-23, with a sharp 5.5% growth in the three months through March providing the final boost. This is odd because multiple ground-level reports have raised questions about the state of the rabi crop, given the untimely heat and rains. Other proxy data also indicates slowing rural demand. Most established manufacturers of fast-moving consumer goods have disclosed a strategy pivot to urban, high-margin products in the face of slowing rural demand; Hero MotoCorp, for example, is lowering the share of 75-110cc motorbikes, a mainstay of the rural markets in its product mix. Overlay this with the emergent El Nino threat, which is likely to disrupt rain patterns, either in terms of total volume or its temporal or spatial distribution. Even assuming India’s official weather forecast of a normal monsoon is on target, it is unlikely to alleviate the structural demand slowdown in rural India. This brings us to another component, which has contracted rather dismally: government final consumption expenditure. Hopefully, with some state elections and the general elections scheduled to be held over the next 12 months or so, the government will turn its focus to this neglected part of the GDP landscape.

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