India’s economy, as measured by the Gross Domestic Product (GDP) as well as the Gross Value Added (GVA), grew 7.8% in the first quarter (Q1) of the year. This is the highest GDP uptick in four quarters, but slightly underwhelming relative to the 8% growth estimated by the Reserve Bank of India (RBI). The central bank’s 6.5% growth projection for 2023-24 factors in a decline in the uptick rate in each of the subsequent quarters of this year, culminating at 5.7% in the final quarter. One will have to wait till October’s meeting of the RBI’s Monetary Policy Committee (MPC) to assess how this math is reworked, although the Chief Economic Adviser V. Anantha Nageswaran believes these GDP numbers do not signal any discomfort in hitting the 6.5% mark for the full year. India remains the fastest growing major economy by a comfortable margin, with China recording a 6.3% rise in the same quarter and facing a fresh slowdown. But the months ahead could prove to be more challenging with global headwinds that have hit goods exports and manufacturing already, combining with domestic pressures from the renewed spurt in inflation and the likelihood of a weak monsoon playing truant with crop yields and farm incomes.
Farm sector GVA maintained its growth pace to rise 3.5% in Q1, but may taper off thanks to the monsoon’s tepid progress and the fear that low reservoir levels may also hurt the rabi crop. The headline growth rates for the services sectors were robust. Trade, hotels and transport rose 9.2%, but in absolute terms, the employment-intensive segment remained 1.9% below pre-COVID-19 levels, indicating the recovery is still incomplete. While the government has been asserting that the private investment cycle has finally taken off, the gross fixed capital formation trends indicate it is still government capital spending that is doing the heavy lifting. Manufacturing GVA grew for the second successive quarter after six months of contraction, but only accelerated slightly from 4.5% to 4.7%, so a broader rebound in consumption demand is likely still awaited. Private consumption spending rose 6% but economists believe this is still dominated by demand from high income earners. Depending on how long the current streak of spiked inflation, especially in food items, persists, demand from lower income segments would be dented afresh. A feeble recovery in rural demand could also come undone if farm incomes take a hit. Interventions to counter inflation, such as export curbs on rice and onions, will hurt growth and the external trade balance, while relief measures, such as the ₹200 cut in LPG cylinder prices, that may proliferate ahead of the general election, also pose risks to the fiscal math and growth.