India’s Q1 GDP growth at 6.7 percent still towers over rest of the world

The Indian economy remains by far the fastest growing major economy in the world.

A bar diagram of the quarterly growth figures of the world's top economies makes for an interesting sight. Sample this. USA—2.8 per cent. China—4.7 per cent. Japan—3.1 per cent. Germany (-) 0.1 per cent. India 6.7 per cent. United Kingdom—0.6 per cent. It doesn't take more than a cursory glance to distinguish whose tower stands the tallest here—India.

The latest estimates put out by the national statistical office (NSO) showed that India’s real or inflation-adjusted gross domestic product (GDP) grew 6.7 per cent in the April-June quarter, slower than the previous quarter's 7.8 per cent and 8.2 per cent growth in the same quarter of the previous year.

After growing at a scorching 8 per cent plus growth on an average the previous four years quarters, the Indian economy's expansion has moderated, but still sharply higher to dwarf the expansion pace in the rest of the global economic powers.

The Indian economy remains by far the fastest growing major economy in the world, amid comparatively stronger bullish prospects. In July, the International Monetary Fund (IMF) raised India’s GDP growth estimates in 2024-25 by 20 basis points to 7 per cent. The IMF has revised upward its forecast from the previous estimate of 6.8 percent in April.

On August 29, credit ratings agency Moody's revised India's economic growth forecast upwards to 7.2 per cent for 2024 and to 6.6 per cent for 2025 from its earlier estimates of 6.8 per cent and 6.4 percent respectively, citing strong broad-based growth.

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Both the IMF and Moody's have placed their bets firmly on India's household consumption, the strongest edifice of the India-growth story, to propel India onto a faster lane than what they had earlier projected.

This is driven by a swelling middle class whose spending ability and appetite and the resultant demand for goods and services will continue to serve as the primary growth machine.

The latest national income data show that the spending propensity of Indian households remains strong and steady. The share of private final consumption expenditure (PFCE), a proxy to measure household spending, has grown to 56.3 percent of GDP (at constant 2011-12 prices) in April-June this year from 55.9 per cent in the same quarter in 2023.

One of the surest signs of consumer spending can be seen in shopping malls and car showrooms. Greater PFCE, other things remaining, can also be seen as a marker for rising consumer confidence.

When families spend more on goods and services, companies add capacity lines to meet extra demand. Most of this demand-led growth is a function of people's income levels, not just of their current income levels, but also of what they think of their future incomes.

For instance, the key determinant of a household to buy a car or a house is not its current income levels, but what it thinks about its ability to finance the car or house purchase over several years since most of these are bought on loans.

The GDP data for the first quarter clearly suggest that consumer confidence is cheerful. Sales of private vehicles grew 17 per cent in April-June this year compared to 10.8 per cent in the same quarter last year. The secondary triggers of greater consumer demand also appear to have set in.

Commercial vehicle sales during the quarter grew 3.5 per cent from a contraction of 3.5 per cent in the same quarter in the previous year, a clue that goods are moving at a faster pace from factories to retail shops and households (through e-commerce deliveries) compared to a year ago. A lot will now depend on how these sustain for a few more quarters.