A key marker to gauge movements in the broader economy can be seen by activity levels in factories, mines, and construction sites of infrastructure projects such as highways and ports. Another indicator could be seen in how much power households and individuals are consuming.
If factories are wheeling out more goods, if there is more activity in mines and quarries, if there is more bustle in infrastructure project locations, and if demand for power has gone up against a comparable earlier period, then, broadly, these could be pointers towards an expanding economy.
In the case of the Indian economy, there are signs of these taking place. The latest national income data for the second quarter (July-September 2023) mirror this.
The provisional estimates of national income for the first quarter of 2023-24, put out by the National Statistical Office (NSO) on November 30, show that India’s real or inflation adjusted gross domestic product (GDP) grew 7.6 percent during July-September this year just shy of the previous quarter’s 7.8 percent expansion.
This translates into a 7.7 percent real GDP growth for India during the first six months of 2023-24.
The standout characteristic of this growth has been the manufacturing sector. During the quarter gross value added (GVA), (which is GDP minus taxes and, therefore, considered to be a better metric to measure economic activity) grew 13.9 percent during July-September, compared to (-)3.8 percent of the same quarter in the previous year.
While part of this growth could be attributable to the contraction during the July-September quarter of 2022, the growth this year may well be explained by greater economic activity in factories. Greater factory output, in normal circumstances, should indicate greater demand for goods at an aggregate level.
Production and consumption of intermediates—cement and steel—appear to corroborate this. Cement production during July-September this year recorded a 10.2 percent growth, compared to 4.9 percent in the same quarter previous year.
Likewise, consumption steel grew 19.5 percent during the quarter compared to 14.3 percent in the same quarter in 2022.
This would, other things remaining the same, broadly imply greater construction activity. Cement and steel are the most crucial components to build roads, highways, and ports.
The national income data does reflect this trend. The construction sector has also recorded a healthy growth. GVA grew 13.3 percent during July-September this year, from 5.7 percent in the same quarter of the previous year. Road and other infrastructure projects can spur economic activity, boost construction and create jobs.
The growth data on mining and quarry echo a similar pattern. The sector’s GVA grew 10 percent during July-September 2023 compared to a contraction of (-) 0.1 percent in the same quarter of 2022.
Domestic coal output appears to have done the heavy-lifting for the mining sector’s turnaround. Coal production during the quarter grew 16.3 percent compared to 10.3 percent in the comparable quarter of the previous year.
Even crude oil production has recorded a positive swing, growing by 1.3 percent during the second quarter of 2023-24 compared to a contraction (-) 3.2 percent in the corresponding quarter of the previous year.
The electricity sector’s GVA grew 10.1 percent during the quarter compared to 6 percent in the previous quarter, perhaps in a sign of higher demand for power in factories to support greater production of goods.
In all of this, there is a caveat. GDP, by definition, represents the total value of goods and services produced in the country. Inflation levels have remained at an elevated 6.4 percent during the quarter, only marginally lower than the previous quarter’s 7 percent. The extent to which high inflation levels have knocked up GVA may need a more detailed examination.
Gaurav Choudhury is consulting editor, Network 18. Views are personal, and do not represent the stand of this publication.
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