At a time when the world’s fourth-largest and Europe’s largest economy, Germany, is battling recession after two consecutive quarters of falling GDP, India has turned out to be an exception among the world’s top economies.
India Emerges As Fastest-Growing Economy Among Top 5
1.1 percent (US), 4.5 percent (China), 1.6 percent (Japan), (-) 0.3 percent (Germany), 6.1 percent (India).These widely varying figures are the real or inflation-adjustedgross domestic product (GDP) growth numbers of the world’s top five economies during January–March 2023.
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The USA, the world’s largest economy, grew 1.1 percent. China’s GDP rose 4.5 percent, the Japanese economy expanded by 1.6 percent, and Germany slipped into a recession with a 0.3 percent contraction of its GDP during January–March 2023. India’s GDP grew 6.1 percent (compared to 4 percent in the same quarter of 2021–22), making it the fastest-growing among the world's top economies.
Last year, the IMF's chief called India a bright spotin the global economy.
During the full year of FY2022-23, India’s GDP expanded 7.1 percent, slower than the previous year’s 9.1 percent expansion.GDP, which is the value of all goods and services produced in a country, often serves as a primary metric to assess an economy’s expansion during a certain period.Although this approach has its fair share of critics, given that GDP is a quantitative metric that does not fully capture everything in an economy.
That said, there are some data points in the provisional estimates of annual national income 2022–23 put out by the National Statistical Office (NSO)on May 31st, as per the Moneycontrol report, that point towards a deeper analysis.
Analysts’ Warning Despite Good Growth
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While analysts were pleasantly surprised by the strong growth rate, they also warned of uneven terrain ahead for the economy,as per the ET report. Growth rates came in higher than analyst expectations, boosted by government and private capital spending even as private consumption remained sluggish.
The gross value added (GVA) growth in the manufacturing sector accelerated to 4.5 percent in the March quarter, as against 0.6 percent a year ago.
GVA growth in the mining sector was 4.3 percent in the fourth quarter, compared to 2.3 percent in the same quarter of the previous fiscal year. The construction sector grew 10.4 percent in the March quarter, up from 4.9 percent in the corresponding period of 2021–22. The agriculture sector's growth accelerated to 5.5 percent from 4.1 percent.
However, there was a decline in both exports and imports, clouding the economic outlook. Barring any monsoon-related risks or geopolitical uncertainties, India's economy may surpass the initial estimate of 6.5 percent growth for the current fiscal year (April 2023 to March 2024).
Keep in mind that private consumption, which accounts for nearly 60% of theeconomy, grew 2.8% year-on-year compared with a revised 2.2% in the previous quarter, while capital formation, an indicator of investment, rose 8.9% from a downwardly revised 8%. As per the report, federal government spending, which constitutes about 10% of GDP, rose 2.3% year-on-year in the latest quarter, compared with a revised 0.6% contraction in the previous quarter.
Also Read;HowGermany's RecessionCan Impact Indian Economy
Experts’ Views On Indian Economy’s Performance
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Let's have a quick look at what some of the experts opine about the Indian economy’s performance:
1. Sonal Varma & Aurodeep Nandi, Nomura (a Japanese investment bank):
The coincident growth indicators as of early Q2 paint a mixed picture. Data for April suggests healthy consumption, service, and investment growth. There was an uptick in new investment projects (CMIE) as of Q1 2023, but the increase is largely driven by the transport sector.
On the other hand, early indications for May suggest that passenger vehicle demand is subdued for small cars and that concerns are growing for MHCV sales. Recent corporate results suggest a lower topline and a higher bottom line; the latter is due to lower input costs, with FMCG companies suggesting continued pressure from weaker rural demand (inflation effects), and IT companies have scaled back revenue and hiring guidance for FY24 (global effects), which will weigh on service exports going forward, as per the ET report.
2. Aditi Nayar, Chief Economist, ICRA (an Indian credit rating agency):
GDP expansion in Q4 FY2023 was appreciably higher than expected while remaining uneven and confirming the hopes of a sequential pickup in the pace of growth of economic activity to 6.1 percent from the bottom of 4.5 percent seen in Q3 FY2023.
ICRA has projected real GDP growth in FY24 at 6 percent, with a downside risk of up to 50 basis points in the event that an El Nino affects the monsoon rains.
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3. Sakshi Gupta, Principal Economist, HDFC Bank (one of India's leading banks):
GDP growth surprised by coming in significantly higher than expected for the fourth quarter, taking the full-year number to 7.2 percent in 2022–2033. Growth was led by higher-than-expected agriculture growth and strong growth in services. Almost 70 percent of the growth increase came from the services sector alone.
The GDP data, as per the report, does validate the recent growth optimism for India, despite global headwinds. This is not to say that the growth outlook is without risks, particularly with regards to monsoon progress and recession risks globally. We expect GDP growth of 5.8–6 percent for FY24.
4. Rajani Sinha, Chief Economist, CareEdge (an Indian credit rating agency):
The growth is expected to moderate to 6.1 percent in FY24 from 7.2 percent in FY23. This is due to a combination of factors such as normalisation of the base, slowing external demand, and uncertain financial conditions. As the post-pandemic spurt in economic activities cools, we could witness some moderation in domestic urban demand. The still-high core inflation could restrain spending on discretionary items by urban consumers.
However, as mentioned in the report, a gradual pick-up in rural demand on the expectation of lower food inflation and higher rural wages will support overall consumption demand. Having said that, the development of El Nino conditions during the monsoon season remains a key risk for agriculture production and rural income. Overall, the share of private consumption in GDP could witness a marginal fall.
Also Read:India Has Zero Probability Of Slipping IntoRecession, Reveals Survey
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