To the practitioners of dismal science it is one measure of economic output – the GDP (Gross Domestic Product) – that matters the most. In a world coping with flailing economies, India had uplifting news to share on Thursday, August 31 evening with the GDP for the April to June quarter showing a growth of 7.8 per cent. This is up from 6.1 per cent growth in the previous quarter and as against 13.1 per cent in April-June 2022. That it is a shade below the Reserve Bank of India (RBI) projection of 8 per cent in the first quarter should not matter much considering the figure (13.1) it is
being compared with from last year.
The Reserve Bank of India (RBI) had projected a real GDP growth at 6.5 per cent for the year with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent. India, at the RBI’s estimate for the year at 6.5 per cent or even lower at 6 per cent, will still remain the fastest growing big economy. As per the growth projections for 2023 by the International Monetary Fund (IMF), it is still higher than the 5.2 per cent for China, 1.8 for the US, 2.1 for Brazil, 1.4 for Japan, and less than 1 per cent for the Euro area.
To economists and industry experts tracking the India story and its aspiration for a seat at the high table of developed nations, action internally ought to happen in the composition of the GDP with the long term growth drivers being those segments of the economy that are employment generating. Be it seeking a higher growth rate in manufacturing or keeping up the momentum in the growth rate in services (driven by travel and tourism) which are all employment generating.
This, especially for a country that during the pandemic saw urban India lose 10 million jobs, saw a rise in agricultural employment and is still coping with a slow pick up in manufacturing apart from suffering an erratic monsoon. A mirror to consumer demand is the FMCG (Fast Moving Consumer Goods) sector. Seen from the FMCG perspective, C K Ranganathan, founder chairman and managing director of CavinKare, has this to say: “There are factors at play today that
are putting pressure on the FMCG volumes. This is because at the end of the day the consumer is under pressure with limited income. If he or she is not to cut back on consumption then either the inflationary pressures need to come down or the per capital incomes have to rise.” It is only then, he says, “that we will see an upswing in rural demand.”
An analyst looking at the FMCG but not wanting to be named, sees no immediate triggers to volume expansions and finds discounts remaining at similar levels and commodity prices almost stable. He points out, “one could hinge hopes on the festive season sales but then it is more likely to happen in discretionary spending and not much on soaps, detergents or toothpaste.” We turned to Naushad Forbes, the author of a rather lucid and insightful book titled: “The Struggle And The Promise” – Restoring India’s Potential. He sees good reasons for a high GDP growth in the first quarter given a higher government capital expenditure and a pick up in the services sector and within this especially retail, travel and tourism.
Forbes, with his deep insights on industry and economy as the co-chairman at Forbes Marshall and also the former president of the Confederation of Indian Industry (CII), says “the key question is what our long-term growth is going to be.” Going by the RBI estimates, he sees the year begin with an 8 per cent GDP growth in the first quarter followed by around 6 per cent in the remaining three quarters if one were to get to the 6.5 per cent GDP projected for the year as a whole by the RBI. This, he feels, is quite likely as the factor of base effect will be missing in the subsequent quarters.
If the growth momentum is to be maintained in the subsequent quarters then it is crucial that there is a full recovery in the employment generation in the urban areas. “We lost 10 million jobs here and if the earlier growth trend of 5 million jobs added each year is to return then we need to add over 20 million jobs, which in turn will trigger a growth in FMCG volumes,” he says. If the FMCG volumes are ahead of the GDP growth, he explains, “it will start reflecting in the manufacturing volumes as well. This is because there will be need to create more capacities.”
On manufacturing alone, which is an important driver for employment, he says the manufacturing growth overall is still at around 4 to 4.7 per cent and therefore not quite the engine taking the GDP ahead. “We are better than the average over the last 10 years but to be a growth engine for the GDP, manufacturing growth has to be higher than the GDP growth.”
Forbes however cautions that while data seems to not yet suggest a pick up in the investment rate, the capex cycle has turned and says, “I can say that from our own experience but it does not seem to be showing in the private sector investment data.”
A silver lining in the current growth numbers is the recovery in services (retail, travel and tourism) which, he says, “is employment generating and is something that we have missed in the last three to four years or since the pandemic which led to disruptions in jobs and in livelihoods.”