We must look beyond India’s exciting headline GDP numbers | Mint

We must look beyond India’s exciting headline GDP numbers

The post-covid recovery has been K-shaped, with upper-income classes recovering much faster than those at the bottom.
The post-covid recovery has been K-shaped, with upper-income classes recovering much faster than those at the bottom.

Summary

  • The second quarter’s faster than expected economic growth is good news, but not all sectors have done well and K-shaped worries persist. Don’t let our economy’s pace detract from the challenge of enlarging it equitably.

The Indian economy’s stellar performance in the second quarter (Q2) of fiscal 2023-24 put all previous GDP estimates, including the Reserve Bank of India’s (RBI) own estimate of 6.5%, in the shade. At 7.6%, Q2 growth came on the back of buoyancy in manufacturing (at 13.9%) and construction (13.3%). Gross value added (GVA), often seen as a better estimate of the true level of activity, grew 7.4%. The numbers are testimony to the “resilience and strength of the Indian economy in testing times," said Prime Minister Narendra Modi. Chief economic advisor V. Anantha Nageswaran was guarded, saying, “We need to work out the numbers and see what kind of upside it imparts to the overall estimate for the year." Understandably so. Geopolitical factors, the strength of the US economy and hence the US Federal Reserve’s continued fight against inflation, and the ongoing global slowdown are sure to lower growth in the second half of the year. But with 7.7% real GDP growth in the first half, overall growth for the full year could end up a tad higher than earlier estimates of 6.5%, making India one of the fastest growing major economies in the world.

Terms like ‘blockbuster’ and ‘scorching’ have been used and this euphoria over the official data is not entirely surprising. But after all the hosannas have been sung, a discerning look at the disaggregated numbers throws up some disquieting features. First, agriculture, on which a large chunk of our population depends, has grown at a 17-quarter low of 1.2%. True, some of the decline can be attributed to erratic monsoon rains this year. Also, the share of allied activities in the farm sector helps cushion the weak monsoon’s shock to rural incomes. But the fallout will have an adverse impact on rural consumption at a time when private consumption shows signs of slowing. Growth in private consumption, which accounts for close to 57% of GDP, was muted at 3.1%, suggesting some of the growth drivers that have held the economy in good stead so far might be petering out. The trade, hotels and transport category, a major employer of those at the bottom of the pyramid, has also done poorly. Its Q2 growth at 4.3% is the lowest since the fourth quarter of 2020-21. Taken together, disappointment by these two sectors should temper our celebration of the surprise showing overall. Especially since it plays into the criticism that the post-covid recovery has been K-shaped, with upper-income classes recovering much faster than those at the bottom. Ironically, this has come despite the Centre ensuring there is no let-up in public investment (private investment is still fighting shy) and government consumption being directed at relieving distress among the poor.

Widening income inequality, aided by a robust bull run in the stock market, with the value of all listed shares going above $4 trillion last week (above India’s expected nominal GDP of $3.6 trillion in 2023-24), is never good news in an electoral democracy. Next year’s general elections will likely see identity politics in play more than economic issues. Yet, it matters how well people are doing. Not just in the near-term, but over the decades ahead, as it will play a key role in whether we can sustain a fast GDP clip beyond our current ‘middle-income’ level. The government and RBI both have their task cut out. They must ensure that the emergence of our economy is equitable, the former through fiscal measures and the latter by delivering on its mandate to get inflation down to 4%.

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