India’s actual GDP growth rate for 2022-23, has been better than expected, says D. M. Deshpande
There was a pleasant surprise when the fourth quarter results of FY22 were released recently by NSO. A poll of 56 economists conducted by Reuters had forecast a Q4 GDP growth of five per cent, as it turned out, it is now estimated at 6.1 per cent.
Once again, it is the agricultural sector that has given a boost to the overall growth; it grew by 5.5 per cent in Q4 against all odds-unseasonal rains, heat waves et al. The 2022-23 full year growth rate is now estimated at 7.2 per cent coming on the back of a growth rate of 9.5 per cent in the previous year.
More recently, the RBI had, based on macro economic trends expected the Q4 growth to be just a shade higher than 5 per cent. Therefore, the actual growth rate has surpassed all expectations including that of the thinks tanks at the global level.
The notion that the Indian economy has been resilient on the face of global turmoil and uncertainty has been reinforced once again. India retains the numero uno position as the fastest growing large economy in the world.
This is good news especially since there is so much gloom almost everywhere in the world. However, some caveats are in order. One, the Q4 results are in the nature of advance estimates and when more data starts coming in, it may be revised. Second, while the growth story is good so far, it faces stiff challenges going forward.
Indian agriculture seems to have combated extreme weather conditions well earlier, but it is now facing a possible deficient monsoon season due to El Nino phenomenon. El Nino is a weather system that results in warming of ocean waters resulting in delayed or below average precipitation in Indian subcontinent. There seems to be consensus on FY24 growth rate to be about six per cent given the global headwinds and internal economic factors. Truant monsoon may well shave off more than 0.5 per cent of the Indian growth rate. The silver lining is IMD has predicted a normal monsoon season based on long term average.
The laggard has been the manufacturing sector that grew by just 1.3 per cent. Despite the policy thrust and fresh initiatives, manufacturing has not picked up in India. It is envisaged to contribute 25 per cent to the nation’s GDP; it has, alas, remained a pipe dream. The latest initiative has been the PLI. It has helped the mobile phones manufacturing and exports; however, the scheme has not been able to impact other areas. In mobiles too, it has resulted in surge in imports of electronic goods and parts.
There is a vicious circle that is preventing the sector from growing. There are problems on both-demand and supply-side of economics. Consumption demand is not picking up to the pre covid levels. This is because rural incomes have stagnated due to the very nature of agriculture and inadequate capital expenditure. The worst impact of the pandemic seems to be behind us.
However, in the last two years growth is seen in housing, travel and leisure and certain services. The growth has been skewed. However, this has created job opportunities- mostly blue collared-in retail, e commerce, tourism and construction. Governments especially at the centre, have given a boost to capex expenditure. This has been in the form of newer, better roads, ports and infrastructure projects. Again, while this has created jobs at the lower end of the ladder, it has not helped much in boosting consumption demand.
In the absence of robust demand, capacity utilization has lagged behind; so also the investment. Private investment has not shown marked improvement and hence the impact on job creation in the economy. Had manufacturing picked up, it would have generated value added jobs with higher incomes. Hence, it is important to break this vicious circle and make way for virtuous circle.
Services too are facing problems what with banks failures, recession in the west leading to reduced demand for IT and related services and energy crisis caused by war in Ukraine. The pent up demand of the worst period of the pandemic seem to be waning off quickly. Hence, it is doubtful whether there will be similar demand in FY 24 for travel, housing and entertainment.
Inflation, rising interest rates and high EMIs may put a brake on demand for housing, cars and other white goods. The economic recovery is still not complete. And there are risks of it getting aborted mid way.
The FY 24 has begun well for the economy. April inflation is down to 4.7 per cent compared to 7.7 per cent in April 2022. In all probability, the RBI may continue to pause in its rate hike cycle once again. These are good signs for demand and consumption to pick up. Inflation data for May 23 is crucial for the economy going forward. In an integrated world there will be economic and geopolitical risks emanating from all over the world. There is no sign of war stopping any time soon in Ukraine.
Global prices of crude oil are showing signs of hardening with Saudi announcing cuts in production. Policy making and economy fine tuning will be crucial to minimize the impact of all these risks. State elections and nationwide elections slated for 24, poll promises, freebies that are certain to be announced-all will have impact on the fiscal deficit and hence inflation.
Prudent fiscal management will be the key for the future growth. Current numbers give confidence to take the economy to $5 trillion mark provided we do not fritter away the opportunities that have come our way.
The author has four decades of experience in higher education teaching and research. He is the former first vice-chancellor of ISBM University, Chhattisgarh.