The wait is finally over. The big economic data release everyone was waiting for has been declared and the numbers are looking really good. Right after S&P upgraded India’s sovereign rating outlook, the Q4 results of India’s GDP were declared on Friday. India’s economic performance has surpassed market expectations with a stellar 8.2% growth in 2023-24, significantly higher than the 7% recorded in the previous year.
But hold on before we start celebrating; there are a few things to unpack here. The 8.2% figure is certainly impressive, but it’s important to understand the details to get a clearer picture of the growth story.
GDP growth over the years
The GDP has maintained a strong position over the years except for the pandemic period.
Strong Finish, Upward Revisions:
Let’s break it down quarter by quarter. The final quarter of FY24 (Q4FY24) saw a strong growth of 7.8%. This is good news, but it’s important to note that the growth numbers for previous quarters were upwardly revised. This upward revision has contributed to pushing up the overall GDP growth for the year.
Taxes vs. GVA Growth:
Another interesting point is the difference between GDP and GVA (Gross Value Added) growth. GVA essentially reflects the value addition within the economy. In FY24, the gap between GDP and GVA growth widened to 1 percentage point, compared to just 0.3 percentage points in FY23.
This widening gap is mainly due to a sharp rise in net taxes, likely driven by higher tax collection and lower subsidies. While this has helped boost GDP growth, it doesn’t necessarily reflect an increase in direct production or economic activity.
Sectoral Performance: A Mixed Bag
Let’s take a peek at how different sectors performed in Q4:
Let’s take a peek at how different sectors performed in Q4:
- Manufacturing: The manufacturing sector was the star performer of the quarter, with a growth rate of 8.9%. This is a significant improvement compared to the sluggish 0.9% growth in the same quarter last year.
- Agriculture: Not all sectors are shining brightly, though. The agriculture sector witnessed a decline in growth, dipping to 0.6% in Q4 FY24 compared to the 7.6% growth in the previous quarter.
- Services: The services sector, a significant contributor to the Indian economy, also showed a slowdown, growing at 5.1% during January-March 2024 compared to 7% a year ago.
- Construction: Bucking the trend, the construction sector continues to be robust, registering a healthy growth of 9.9% for the entire FY24.
Investment and Consumption: A Glimpse into Consumer Behavior
- Looking at investment activity, Gross Fixed Capital Formation (GFCF), which reflects investments in the country, grew by 6.46% in Q4 FY24.
- Private final consumption expenditure (PFCE), an indicator of household spending, also moderately increased by 3.98% year over year in Q4 FY24.
- Government final consumption expenditure (GFCE) grew at a slower pace of 0.89% compared to the same period last year.
What does it mean for India’s economic future?
While the overall GDP growth for FY24 is certainly encouraging, there are areas that require closer attention. The slowdown in agriculture and services needs to be addressed, and investment activity needs to pick up further.
To conclude,
Economists are still optimistic about India’s growth prospects, but it’s important to maintain a watchful eye and implement policies that can address these sector-specific challenges and stimulate broader economic activity. With the right approach, India can build on this momentum and achieve its ambitious target of a $5 trillion economy in the coming years.
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I’m Archana R. Chettiar, an experienced content creator with
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