At 6.1%, India’s Q4 GDP faster than the biggest, but there are a few worry lines

High interest rates and relatively higher inflation may have dampened consumer confidence

1.1 percent. 4.5 percent. 1.6 percent. (-) 0.3 percent. 6.1 percent. A bar diagram of these numbers makes for an interesting reading. These are the real or inflation-adjusted gross domestic product (GDP) growth numbers of the world’s top five economies during January-March 2023.

USA, the world’s largest economy grew 1.1 percent. China’s GDP rose 4.5 percent, the Japanese economy expanded by 1.6 percent, and Germany slipped into a recession with a 0.3 percent contraction of its GDP during January-March 2023. India’s GDP grew 6.1 percent (compared to 4 percent in the same quarter of 2021-22), making it the fastest growing among the world's topmost economies. India’s bar in the statistical Manhattan graph of first quarter (of calendar 2023) growth will stand the tallest.

During the full year 2022-23, India’s GDP expanded 7.1 percent, slower than the previous year’s 9.1 percent expansion. GDP, the value of all goods and services produced in the country, often serves as a primary metric to assess an economy’s expansion during a certain period, although this approach has a fair share of critics, given that GDP is a quantitative metric that does not fully capture everything in an economy.

That said, there are some data points in the provisional estimates of annual national income 2022-23 put out by the National Statistical Office (NSO) on May 31 that need deeper analysis.

Boost from construction

The construction sector, clearly, has done the bulk of the heavy lifting, during the quarter and also during the whole year 2022-23. Gross value added (GVA), which is GDP minus taxes and is a more realistic proxy to measure economic activity, in the construction sector in 2011-12 prices grew 10.4 percent during the quarter. But for a blip during the second quarter (July-March 2023) when the sector’s constant prices GVA grew 5.7 percent, it has remained high at close to or above double digits during the rest of the quarters. This, in all likelihood, mirrors a fairly robust pace of infrastructure project creation, such as roads, ports and railways, which also has stronger income and employment multiplier effects.

There are, however, signs that consumption spending, which has always been the major growth engine for the Indian economy, seems to be plateauing out a bit. The numbers in the national income statistics have a few pointers. Private finance consumption expenditure (PFCE), a marker to gauge how households have spent on buying goods and services, has stagnated significantly during the fourth quarter (January-March) 2022-23. At constant 2011-12 prices, PFCE during the quarter stood at Rs 23,99,515 crore up 2.8 percent compared to Rs 23,33,501 crore during the same quarter in the previous year.

High interest rates and relatively higher inflation may have dampened consumer confidence. As a percentage of GDP too, PFCE has turned in lower at 55 percent in the fourth quarter of 2023-24, compared to 56.7 percent in the same quarter of the previous year.

Similarly, government spending appears to have flattened out in the last quarter of 2023-24 as compared to the previous year. Government final consumption expenditure (GFCE), a broad indicator of how the government has been spending, stood at Rs 4,85,284 crore during January-March 2023 as compared to Rs 4,74, 406 crore in 2021-22, growing at 2.3 percent. As a percentage of GDP, GFCE stood at 11 percent in the fourth quarter of this year, compared to 11.5 percent in the same quarter of 2021-22.

The good news is that agriculture seems to have turned the corner with constant prices GVA growth at 5.5 percent during the quarter compared to 4.1 percent in the same quarter of the previous year. Manufacturing too, it appears, have rebounded smartly with a 4.5 percent growth, after two consecutive quarters of contraction. Likewise for trade, hotels, and transport that grew 9.1 percent during the quarter, reflecting packed flights and hotels, both for business and holidaying purposes.

Both consumption spending and government spending will have to quickly accelerate onto a faster lane and continue to expand consistently over the medium term to maintain India’s growth momentum.

Disclaimer: Gaurav Choudhury is consulting editor, Network18. Views are personal, and do not represent the stand of this publication.