GDP (Gross Domestic Product) of Indian economy recorded growth of 7.6% during July-Sept’23 quarter (Q2’FY24) as per the data released by NSO (National Statistical Office) today. Growth rate for first half of FY24 works out to 7.7% which means economy needs to grow at about 5.5% during the second half to meet RBI’s projection of 6.5% full year growth. The quarterly figure is 18% higher than Q2’FY20, the pre-pandemic year. Here is a brief analysis of GDP and its constituents.

As per the NSO release, Indian economy recorded GDP of Rs 41.7 lakh crore (at constant price, base 2011-12) during the quarter against Rs 38.8 lakh crore in Q2’23 (July-Sept’22). In current price or nominal terms, the figure stands at Rs 71.7 lakh crore, growth of 9.1%. Difference in nominal and constant price growth is only 1.4% which means limited impact of inflation during the quarter. In comparison to GDP, GVA (Gross Value Added) stood at Rs 38.3 lakh crore, growth of 7.4%, marginally lower than GDP growth rate. GDP is equal to GVA plus government’s net tax collection (taxes minus subsidy). If GDP growth is higher than GVA, it means government net tax collection has grown higher. This is actually the case with 10.2% growth in the same.

Sectoral Analysis – 

GDP of the economy is calculated by estimation of GVA (Gross Value Added) for eight sectors – Agriculture, Mining, Manufacturing, Electricity (& other utilities), Construction, Trade (hotels, transport etc), Financial (real estate & professional services) and Public Administration (& defence etc). To this, net government tax is added to arrive at the GDP. Of the eight, financial services accounts for the largest share of about 21%, followed by Trade, Manufacturing and agriculture in the 14-17% range. Mining and electricity are the smallest with share of just about 2%.

The biggest surprise is almost 14% jump in manufacturing sector GVA which is also the highest among all the eight sectors. For Q1’24, its growth was 4.7%. Even discounting for low base since manufacturing had contracted by 3.8% in Q2’23, growth rate works out to about 10% which is significantly high. Whether this is a result of government’s thrust on Atma Nirbhar Bharat or just a blip would be clear in the next few quarters. Over Q2’FY20 level, the figure corresponds to an increase of 27%, highest across all sectors. Other sectors with high growth during the quarter are construction at 13.3% and the two small segments, electricity and mining at 10%. Construction and electricity are about 25% higher than Q2’20 level, whereas mining is only 12% higher. Growth in construction must be a relief as its growth is crucial for employment generation.

While manufacturing and related sectors have down well, services have been quite disappointing with trade and financial service growing at only 4.3% and 6% respectively. These two sectors had grown at an average of 9.3% and 8.3% during previous three quarters. The figures for the two sectors are quite concerning since it is just 11% and 15% over its FY20 level. Agriculture suffered with erratic monsoon recording growth of barely 1.2% whereas government expenditure driven ‘Public administration etc’ grew by 7.6%. Lower agriculture growth means government would need to release more funds for schemes like MGNREGA to mitigate rural stress.

Expenditure Analysis –

GDP is also calculated from the expenditure side and is equal to amount spent by the three segments – expenditure by households called private final consumption expenditure (PFCE), expenditure by government called Government final consumption expenditure (GFCE) and expenditure on creating physical assets or investment called gross fixed capital formation (GFCF). To this, some more accounting is done to arrive at the final GDP figure. Approximate share of the three were 58.5%, 10% and 34% in FY23. (Total is not 100 due to other small items).

PFCE, the largest of the three, has seen a lacklustre growth of 3.1% only, lower than average of 3.7% in previous three quarters. Over Q2’20 level, it is only 18% higher as a result of which, its share in GDP has marginally declined over FY20. GFCE (Government expenditure) was strong, growing at 12% against average of 0.3% in previous three quarters. However, it is 11% lower in comparison to FY20 figure. GFCE has been showing lot of variation since Covid, going up when the economic condition looks subdued and coming down when private expenditure is looking good. Standard deviation of GFCE since pandemic is 20% higher than earlier GFCE.

The highlight is GFCF or Investments which grew at 11% and is 35% higher than its Q2’20 level. Its share in GDP has gone up from 31.6% in FY20 to 35.3% in Q2’24. Investments may have got some support from government investment in infrastructure and private investment supported by government schemes such as Production linked Incentive (PLI). Going forward, government will have to step up its spending as private consumption remains subdued and investments cannot hold on its own unless backed by private or government support.

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