India’s GDP growth rate for the current fiscal year (2023-24) is expected to be 7.3%, slightly higher than the 7.2% growth rate in 2022-23, according to the advance forecast (FAE) released by the Indian government on Friday. .
The FAE is published at the end of the first week of January each year. These are only initial estimates of growth rates for the financial year. The Ministry of Statistics and Program Implementation (MoSPI) plans to release a second preliminary estimate by the end of February and a provisional estimate by the end of May.
GDP estimates will continue to be revised as more and better data become available. And over the next three years, MoSPI will publish the first, second, and third revised estimates of GDP for the current year before deciding on the final number, known as ‘GDP’. Achievements”.
The FAE is based on the economy’s performance over the first seven-plus months, and the data is extrapolated to get a full-year picture.
“Advance estimates of national income are indicator-based and compiled using the benchmark indicator method. This means that estimates available for the previous year (2022-23) are based on relevant indicators that reflect sector performance. ” said the official news agency. said the release.
What’s the point of FAE if the data isn’t final?
The critical importance of the FAE is that it is the last GDP data to be released before the Union Budget for the next financial year (to be presented on February 1) is decided. The FAE therefore forms the basis of the budget figures. However, a full-fledged Union Budget will not be presented this year as the Lok Sabha elections will be held from April to May.
This year’s FAE derives added significance from the fact that it provides the first complete picture of economic growth during the decade of Prime Minister Narendra Modi’s government.
So what does the FAE data show?
of chart The figure shows India’s real GDP (GDP after removing the effect of inflation) both in absolute terms (Rs 100,000 crore) and as a growth rate.
chart.
By the end of March 2024, India’s GDP is expected to increase to nearly Rs 172 crore. When Prime Minister Modi first came to power, India’s GDP was 98 million rupees, but by the start of his second term, it had reached almost 140 million rupees.
On an annual basis, the estimated growth rate of 7.3% in 2023-24 offers a substantial and pleasant upside surprise. Most stakeholders, including the Reserve Bank of India, had expected growth to slow to between 5.5% and 6.5% this fiscal year. GDP growth is expected to be almost 1 percentage point higher than high expectations, underscoring the strength of India’s economic recovery.
However, growth has clearly slowed down in the second term of the Modi government compared to the first term. From 2014-15 to his 2018-19, the Indian economy grew at a compound annual growth rate (CAGR) of his 7.4%. In the second period (2019-20 to 2023-24), it was only 4.1%.
The biggest reason for this is the low growth rate during the first two years of the current administration. The economic growth rate was less than 4% in 2019-20 (before the coronavirus pandemic), but contracted by 5.6% in 2020-21 (immediately after the coronavirus outbreak).
Overall, this year’s growth rate of 7.3% suggests an optimistic outlook. This is because much of this momentum has little to do with the low base effect that boosted GDP growth in FY22 and FY23.
What is contributing to India’s growth?
India’s GDP is calculated by summing all types of expenditure in the economy, i.e. the demand side of the economy. Therefore, there are four main “engines” for GDP growth.
*Spending by people in their personal capacity: Technically, this is called: Private final consumption expenditure (PFCE). It accounts for almost 60% of India’s GDP.
*Spending on investments to increase the economy’s productive capacity: This could be building factories, buying computers for companies’ offices, or building roads for the government.this is called gross fixed capital formation (GFCF)is the second largest growth driver, typically accounting for 30% of GDP.
* Expenditures made by the government to cover daily expenses such as salaries: This is Government Final Consumption Expenditure (GFCE). It is the smallest engine and accounts for about 10% of GDP.
*net export Net spending as a result of spending by Indians on imports and spending by foreigners on India’s exports: Since India typically imports more than it exports, this engine lowers the GDP calculation and displays it with a negative sign. Masu.
of table It shows how each of these components performed in absolute values and percentages.
table.
Personal consumption demand: This year, overall human demand is expected to increase by 4.4%. This is similar to his CAGR in the second term of the Modi government (4.5%), but significantly lower than the growth rate in the first term (7.1%).
The decline in consumer spending is exacerbated by rising inequality. While consumption in some parts of the economy (for example, the rich in urban areas) is growing fairly rapidly, large parts of the economy (particularly in rural India) have not yet fully recovered. People should not spend more than they earn, but there are concerns that the performance of our biggest growth engine is slowing.
Investment expenditure: A high rate of investment spending is considered a positive signal for the economic outlook, as it indicates that businesses are optimistic about future consumption demand. On the surface, his current year investment is up 9.3%, helping bring his CAGR in the second period (5.6%) closer to his CAGR in the first period (7.3%) .
However, two concerns remain. One, the bulk of investment spending still comes from the government, and two, consumer spending remains weak.
Government spending: Just as private demand growth has been weak at 3.9% this year, government spending growth has also slowed further. Despite the disruption caused by the coronavirus, there has been little growth in government spending in the second period. The CAGR is 2.8%, which is significantly lower than the CAGR of 7.9% in the first period.
Net exports: If the data for a particular year shows a negative sign, it suggests that Indians import more than they export. Therefore, the negative growth rate here is a good development. This year, this drag effect has increased by 144%. However, the growth rate in the second period has slowed from 19.6% to 13.3%, a gradual improvement.