With India’s GDP growth rising to 6.1 percent in January-March, former NITI Aayog vice-chairman said that it is the beginning of a virtuous cycle of growth backed by high government capex and pickup in private investment, though Centre needs policy steps to push up exports which can be a snag.
“Two things have happened. The government took upon itself to push the capex cycle up, now the economy is getting benefits. Private capital investment is taking a U-turn shown by high bank credit growth. Investment demand is picking up and pushing these numbers up, which will be followed by improvement in consumption demand. We can see the start of a virtuous cycle of growth going forward,” Rajiv Kumar told Moneycontrol.
The only snag could be a slowdown in global economic growth for which India needs to be prepared and make policy steps.
“We need to ensure exports don't slack off in coming quarters. It is time to increase our share in the global market in selected industries for export growth to be buoyant. If we are able to do that India can sustain the growth going forward,” he said.
"April-June shows clear signs of private investment beginning to pick up. I am hoping private investment pickup will continue and drive growth going forward," he added.
For 2022-23 as a whole, the statistics ministry's first provisional estimate has pegged the GDP growth at 7.2 percent, 20 basis points higher than the second advance estimate of 7 percent. The numbers will also ease fears of the Indian economy slowing down, as has been predicted by several economists.
Kumar said that however there is a weakness in foreign direct investment and hoped that the government's commitment to improve the system and make it friendly to private investors will help.
The rural demand continues to be uncertain on account of the El Nino effect.
“If the monsoon is normal as forecast by IMD, rural demand may hold, though it may not be a big increase. That will also help the investment cycle,” he said.
The former NITI Aayog vice-chairman said that FY24 growth should be 6 percent plus which will be good enough.
Former Central Board of Direct Taxes member Satish Gupta hailing the high GDP growth numbers said that a massive push to infrastructure and an increase in growth of construction sectors like steel and cement have helped push up growth.
“The huge increase in the digital economy brings into calculation some unorganised sectors of the economy as well. This is a very good sign for India's story. Rural demand will definitely pick up this year being an election year,” Gupta told Moneycontrol.
On the other hand, former economic affairs secretary EAS Sarma said that importance should be given to sustainable GDP growth as these numbers can be misleading as its accounting does not take into account income disparities and drop in real wages.
“The GDP growth percentage can be very misleading as it's on the base of the previous year. We need to take an average of 2-3 years to know the trend. GDP is a very deficient indicator. It doesn’t capture the income disparity and concentration of wealth. GDP will increase if wealth is concentrated, but in the long run it’s not sustainable. GDP accounting is defective as it also doesn’t take into account the depletion of resources. When mineral production happens, it increases GDP growth, but it depletes the assets,” Sarma told Moneycontrol.
He said that real wages do not seem to have increased but it is not captured in GDP. The GDP growth rate should be taken with a pinch of salt.
The GDP growth will also depend on the investment atmosphere and policies. Sarma said that the slump in the world economy may also affect India in FY24.
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