– Rumki Majumdar
India’s FY 2023-24 GDP topped all projected estimates with a strong 8.15% per cent growth after the fourth quarter GDP came in sharply higher at 7.8 percent in the fourth quarter. Albeit slightly below the 8 percent trend witnessed in the preceding three quarters, fourth quarter performance maintained the strong momentum. While the data and growth drivers have been extensively analysed since its release, three key observations stand out. Notably, some previously lagging growth drivers—consumption, exports, and manufacturing—are showing signs of improvement. This is encouraging news, as it suggests that economic activity may finally be exhibiting broad-based growth.
Firstly, private consumption spending has not done as badly as was reported earlier. There were upward revisions to the third quarter data suggesting the quarter of festivals and Cricket World Cup did better than previously believed. The Q3 GDP growth was revised to 8.6 per cent, up from the earlier estimate of 8.4 percent, on the back of a 50-basis point upward revision of private consumption spending.
Private consumption continued the growth momentum, albeit modest, of 4.0 per cent for two consecutive quarters. But high frequency indicators hinted at somewhat broad-based improvement in the fourth quarter with rural demand gradually catching up with urban demand. Sales of two-wheelers and tractors, which are proxy indicators for rural areas, witnessed healthy growth. This is further supported by data from FMCG companies, indicating a rise in rural spending. At the same time, strong domestic air passenger traffic and a significant 11.2% YoY growth in the Index of Industrial Production for consumer durables pointed to healthy demand in urban areas.
Besides, the agriculture sector may not have performed as badly. GVA for the agriculture sector was revised up for Q3 (as opposed to the contraction as estimated previously) and it remained modest this quarter as well. This could mean that rural income may not have suffered much as expected. With rainfall expected to be above normal during monsoon, higher farm income will quickly help rural consumption rebound stronger.
Secondly, India’s exports surged by an impressive 8.1% in Q4, the highest this fiscal year. This stellar performance improved the contribution of net exports to the overall GDP growth and helped reduce the trade deficit. Notably, high-end manufactured goods like pharmaceuticals, chemicals, engineering products, and electronics achieved record exports this quarter, propelling overall growth in merchandise exports in the high-value-added segment. This positive trend bodes well for India as it aims to strengthen its integration into the global value chain and ambitiously increase its exports to USD 2 trillion over the next six years.
And finally, growth in manufacturing remained strong at 8.9 percent, although it moderated slightly from the past two quarters’ growth. High-frequency indicators suggested mixed results. The PMI for manufacturing had displayed a sustained expansion in January-March, but IIP numbers pointed to some moderation. Given that the IIP base, the base year is 2011-12, the provisional item basket may not be a good representative of India’s current manufacturing.
A few observations regarding investments and government spending are noteworthy.
For instance, investment momentum has slowed, decreasing to 6.5% this quarter. This quarter’s investment dip likely reflects temporary wariness due to national elections in India and other major countries, the escalation of geopolitical tensions in the Central Asian regions, and the slowdown in China. While the incoming new government will reignite investor confidence and propel investment up in the immediate months, the momentum will likely gain strength once global liquidity conditions improve after Western central banks ease monetary policy as expected later this year and the world witnesses synchronised global growth starting next year. The outcomes of the US elections will have an important influence on capital flows.
After a contraction of 3.2% last quarter, government spending saw a modest increase of 0.9% this quarter. This is also reflected in the fiscal deficit numbers, which narrowed to 5.63% of GDP, exceeding expectations from the initial Budget Estimates (5.9%) and the Revised Estimates (5.8%). This shift towards fiscal prudence focusing on long-term investments through raising capital expenditure will foster investor confidence and crowd in private capex spending.
As the new government embarks on its five-year term, FY 2023-24 data indicates that India is poised for accelerated growth. With additional reforms and initiatives anticipated in the coming months, India’s growth story is set to be driven by strengthened underlying fundamentals and a more broad-based and sustained expansion in the years ahead.
(Rumki Majumdar is the economist at Deloitte India.)
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