What the GDP numbers say
September quarter confirms the economic situation is healthy, but challenges remain
OUR TAKE
September quarter Gross Domestic Product (GDP) numbers, which were released on November 30, are in perfect sync with the Reserve Bank of India (RBI)’S projection of 6.3%. They also do nothing to jeopardise IMF’S projection that India will continue to be the fastest-growing major economy in the world. If inflation continues to moderate — most forecasters, including RBI, believe that it will — and there is a sincere, even if gradual step towards fiscal consolidation in the forthcoming Budget, India will continue to have a virtuous confluence of macroeconomic stability with high growth. This is not a small feat at a time when the global economy is dealing with after-effects of the pandemic, inflationary shocks of the ongoing war in Europe and the turmoil in the financial markets because of monetary tightening in advanced countries, especially the United States.
Despite all these positives, the latest GDP numbers do raise a red flag. The simple reason for this is that being the fastest-growing in the world is not fast enough for India given its economic necessities, most importantly, the challenge of giving a boost to incomes. Almost all forecasters predict a maximum of 7% growth for the current fiscal year and sub-7% growth for the next fiscal. There are reasons to believe that income growth for a significant majority of the population will actually be lower than these numbers. So, while India’s policymakers deserve some credit for the country being where it is, they need to look at finding the next big source of tailwinds to India’s growth story. To be sure, policymakers are proactively seeking opportunities through steps such as the Production Linked Incentive Scheme and a big-bang supply side boost to India’s infrastructure network. Important as these initiatives are, their benefits will only accrue in the medium term and initially be skewed towards the already well-off segments. The economy will need the existing domestic demand engine to have enough ballast until then.
The next Budget will be this government’s last fullfledged one before the 2024 general elections, although nothing prevents the government from making big bang announcements in the Interim Budget in 2024. It will be interesting to see whether there are any significant measures to boost demand among the non-rich in the 2022-23 Budget or fiscal consolidation takes priority. The trade-off between these choices cannot be oblivious to India’s external balance concerns. The short point is the economic situation is healthy, and definitely not crisis-ridden, but continues to present its own challenges.