GDP growth numbers show robust optimism

India’s GDP growth rate has surprised on the upside, with the National Statistical Office’s (NSO) second advance estimate surpassing all previous estimates. The real GDP growth for the third quarter has been estimated at 8.4 per cent, above the market expectation of 6.6 per cent, and the RBI estimate of 6.5 per cent. The NSO now expects GDP growth for 2023-24 at 7.6 per cent against projections of 6.7-7 per cent. If these rates sustain, the economy would grow at or above 7 per cent for the third consecutive year when global growth is seriously challenged. India will continue to have the highest growth rate among all large economies. The NSO also released the revised numbers for previous years and estimates for the third quarter. The growth estimate was revised lower, and that may have helped to present growth in the current year in a better light on account of the lower base. There are also indications, based on revised estimates for the first three quarters, that the growth for the current quarter may be less than expected. But the momentum is real and present and that would boost sentiments.  

At the disaggregated level, manufacturing and construction are expected to grow by 8.5 per cent and 10.7 per cent, respectively, this financial year. Manufacturing growth rose to a five-month high in February on the back of a jump in factory production and sales. The industrial sector grew at 9 per cent this year on the back of the strength in manufacturing. Agriculture and allied activities may see muted growth at 0.7 per cent compared to 4.7per cent in the previous year. The value added by the sector has fallen by 0.8 per cent in the third quarter. 

Though the figures show that growth is strong and healthy, there are issues of concern too. Consumption has continued to be weak. Private spending grew by just 3.5 per cent in the third quarter, and is expected to grow at 3 per cent for the full year.  At 3 per cent it has trailed overall GDP growth. Rural consumption would be slower than urban consumption since food inflation, which is still high, affects rural spending power. Private Final Consumption Expenditure (PFCE) accounts for more than half of the country’s GDP but it has not shown signs of picking up. The investment cycle will strengthen only when private consumption grows. Though capital formation increased by over 10 per cent, the private sector would be reluctant to increase capacity if private consumption remains weak. The government will not be able to sustain high levels of capital spending. Fighting inflation and pushing up agricultural growth should receive high priority.