Challenging outlook

The growth data released by the Ministry of Statistics and Programme Implementation (MoSPI) for FY23 has elicited mixed response from experts. Though in terms of numbers, India's growth outlook may seem to be outdoing many developing and developed countries, on practical grounds, challenges remain. The MoSPI data show that the Gross Domestic Product (GDP) grew year-on-year by 6.3 per cent in the July-September period. This growth is way lower than the year-on-year growth of 13.5 per cent registered in the first quarter. Even the second quarter growth last year stood slightly higher at 8.4 per cent. Given that the economy is heading towards a recuperation, the overall GDP growth numbers are by and large suboptimal. GDP, as it is known, provides economic output from the consumers' (demand) side. It is essentially obtained through a summation of private consumption, gross investment in the economy, government investment, government spending and net foreign trade. GDP provides a holistic picture of growth, making it reliable for annual growth figure comparisons or cross-country analysis. Data around another measurement of growth, Gross Value Added (GVA), is also incorporated in the MoSPI analysis. It is reported that India's Gross Value Added in Q2 grew by 5.6 per cent on a year-on-year basis. Contrary to GDP, GVA — which was adopted by India in 2015 under United Nations System of National Accounts (SNA) — measures economic output from the production (or supply) side. It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials. At macro level, it is obtained through the summation of GDP and the net of subsidies and taxes in the economy. GVA is considered as a better measure of sectoral growth. It is also accurate from a policy formulation perspective since it is not inflated by a spurt in taxation — thus being insulated from misleading analysis. GVA figures for manufacturing in Q2 are distressing. As per the released data, Quarter 2 saw a 4.3 per cent slump in manufacturing GVA. In fact, the growth of GVA is reported to have been diluted over the past six years. Indian Express reported that between FY14 and FY17, manufacturing GVA had grown by 31.3 per cent — coming down to just 10.6 per cent between FY17 and FY20, and 6.3 per cent thereafter. This does not augur well for the times to come. Given that manufacturing is a job-intensive sector, its slowing down may have a ripple effect in the next half of the fiscal. Apart from manufacturing, other job-intensive sectors like mining and quarrying, too, have experienced a perpetual contraction. It is true that services such as trade and hotels, among other things, grew by 15 per cent but the growth over the pre-covid period has only been marginal. More importantly, private consumption — which is a major contributor to the GDP — has registered only a marginal growth. Private consumption spending registered a 9.7 per cent year-on-year growth, against 25.9 per cent in the first quarter. The slow figures have come despite the Q2 being a festive season. The major problem, however, is the contraction in government consumption spending. It is reported to have contracted by 4.4 per cent in Q2 on a year-on-year basis. In fact, the contraction along this parameter is of more endemic nature. It has been on the decline ever since the onset of the pandemic. This is indeed ironic because, in times of crises, it is the government that must act as a bulwark. Apart from these factors, the export sector continues to be a perennial spoiler for the Indian economy. India may try to seek solace in the fact that its growth numbers are better than many other countries of the world but, on the ground, there are serious challenges. Foremost, government spending needs to be ramped up and critical sectors like manufacturing need to be buttressed.