Employment-intensive sectors such as agriculture and the trade, hospitality and transport sector have grown much more slowly. But the sustained pace of the last three years still does not fill the void created during the Covid years.
Thus, an analysis of the last ten years of growth shows that the economy grew at an average rate of less than 5% over the last five years (FY20-24), compared to 8% over the previous five years (FY14-19 ).
But first, some good news, excellent news:
1. Growth in FY24 for all quarters was well above expectations. For the full FY24, GDP grew 8.2%, up from 7.8% according to the CNBCTV18 poll. Similarly, for Q4FY24, GDP grew by 7.8% against market estimate of 6.7%.
2. Third quarter FY24 GDP was revised upwards from an already high 8.4% to 8.6%.
3. India’s long lagging and worrying manufacturing sector grew by 9.9%, although this was at least partly explained by a very low base of -2.2% a year ago; Likewise, the mining sector also increased by 7.1% compared to 1.9% a year ago.
4. Gross fixed capital formation, (or simply investments) increased by 9%, which was clearly evident in the construction sector with growth of 9.9% compared to an equally strong rate of 9. .4% in FY23.
5. Separately, the government released the full FY24 budget data, which shows that the central government deficit is down to 5.6 percent, compared to 5.8 percent forecast in this year’s revised budget and 5, 9% in the budget estimates for FY24 last year. This means that the government’s fiscal deficit fell from 6.4% in FY23 to 5.6% in FY24, a decline of 80 basis points; in real numbers, fiscal stimulus was a trillion to a trillion short (₹16.5 lakh crore in FY24 against ₹17.5 lakh crore in FY23). The economy has grown strongly despite the reduction of fiscal steroids by the government. This reflects the rapid improvement in economic health.
6. Despite a smaller deficit, the government achieved its investment objective of ₹10 lakh crore or 3.3% of GDP, which will hopefully lay the foundation for improved productivity in the years to come.
Read also | India’s GDP grows 8.2% in FY24, beating all estimates
While all of the above points raise hope that the economy will continue to grow at a healthy pace, the following trends raise some concerns:
1. Private consumption increased by only 4%, and this is clearly due to the fact that the two employment-intensive sectors – agriculture-livestock-forestry-fishing at 1.4% and commerce-hotels- transport-communication (at 6.4%) experienced much slower growth than the economy as a whole.
2. The fact that employment-intensive sectors represent an increasingly small share of GDP reflects an increase in inequality.
3. More importantly, if consumption does not grow fast enough, the private business sector will be less inclined to invest and growth driven by investment spending could begin to falter.
4. GDP growth of 8.2% also overestimates the pace of growth. The technical calculation of GDP must be understood. The actual output produced by the economy is called GVA or gross value added. To this we add indirect taxes and subtract subsidies to obtain GDP (GVA+indirect taxes-subsidies=GDP).
Now, much of the Covid-related food subsidies have ended in FY24; Fertilizer subsidies were also lower in nominal terms due to falling prices. The year-over-year impact exaggerates the growth figure to 8.2%. A more realistic growth figure is the GVA figure of 7.2%, which is also strong. But it is important to note that GVA growth declined from 8.3% in Q1FY24 to 7.7% in Q2, 6.8% in Q3 and 6.3% in Q4 quarter.
5. The downward trend in GVA growth and the likely disappearance of subsidy distortion, combined with declining fiscal stimulus and fears of a slowdown in global growth, have kept most economists from revising to increasing their growth estimates for FY25. GDP growth estimates for FY25 are between 6.5% and 6.8%
6. The most important point to consider is that the Indian economy is yet to overcome the slowdown created in the economy by the Covid years.
Source: Mospi
The table above shows that if we take FY14 as a base, the average annual growth until FY19 stands at around 8.5%, while if we take FY 19 as a base, the average annual growth through FY24 stands at 4.85%. Over the past three years, the economy has compensated for the Covid slowdown, the government has provided assistance through the budget deficit and households have exhausted their savings. Even so, the economy is far from the pre-Covid trend level.
Read also | GVA-GDP divergence: a storm in a teacup? CEA rejects concerns, saying ‘this is not new’
The evolution of real income per capita also reflects the gap that needs to be closed.
Here is the breakdown by year:
Source: Mospi
Read also | GDP growth expected to be 6.7% in the fourth quarter; 7% in FY24: Ind-RA
The above data shows that even though GDP per capita grew at an annualized average of 6.5% over the five-year period between FY2014 and FY2019; from FY19 to FY24, the average annual per capita growth is only 3.5%.
This is despite the fact that the population has grown at a slower rate over the past five years compared to the previous five years.
So while there is plenty of reason to celebrate the GDP numbers, the economy must continue to grow as fast, if not faster, if only to fill the deficit created by Covid, and then recover. press it.
Healthier balance sheets for banks and corporations will help, but job creation for a young and growing population will determine the pace and quality of future growth.
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