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GDP increase merits cautious optimism 

The figures released by the National Statistical Office (NSO) on Wednesday also showed that the economy expanded by 7.2%
Last Updated 01 June 2023, 19:01 IST

The growth of the country’s Gross Domestic Product (GDP) in the fourth quarter of the last financial year by 6.1 per cent, up from 4.5 per cent in the third quarter, went way beyond expectation, and has given rise to hopes about continued good performance in the current year.

The figures released by the National Statistical Office (NSO) on Wednesday also showed that the economy expanded by 7.2 per cent in 2022-23 against the advance estimate of 7 per cent. It makes the country a standout performer globally. It was the performance in the last quarter that raised the economy to that level.

Also Read | GDP grows at 7.2 per cent in 2022-23, beats govt’s projection

Disaggregated data shows momentum in most sectors. The agricultural sector registered about 5.5 per cent in the fourth quarter which contributed to a full year growth of 4 per cent, belying earlier fears of a slowdown due to adverse climatic factors. Within the non-farm sector, manufacturing, which had contracted in the second and third quarters, turned around in the fourth quarter.

But it showed only a modest growth of about 1.3 per cent during the whole fiscal year. Some sectors like trade, hotels, transport, and communications and services, related to the broadcasting segment, showed clear outperformance. The financial, real estate and professional services segments also were at a high 7.1 per cent.

But it may be unrealistic to extrapolate last year’s trend to the current year and too early to take political credit for the performance. The numbers for the whole year were influenced by the growth rate in the first half of the year which were high because of the low base of the Covid-hit previous year. It is the performance of the second half which will better help to provide an outlook for the economy in the current year.

The Reserve Bank of India (RBI) expects the economy to grow at 6.5 per cent in the current year. But even this lower rate may not be easy to achieve for a variety of reasons.

The continuing weakness in private consumption does not augur well for growth this year. It grew by only 2.8 per cent in the fourth quarter, marginally higher than 2.2 per cent in the third quarter. Increase in consumption is crucial for growth and it is not certain to rise because of factors like inflation, which is still at high levels. The RBI expects inflation to be around 5.2 per cent. That is much above the targeted 4 per cent and does not leave scope for interest rate changes. The interest rates will remain elevated and so credit growth will be under pressure. Though investment saw a pickup last year, it may not sustain in the current year. The slowdown in the global economy and tighter financial conditions may affect trade and growth. The uncertainty about the monsoon may add to the overall concerns.

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(Published 01 June 2023, 17:42 IST)

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