Shining bright
Robust GDP growth, controlled inflation, good fiscal discipline and rise in consumption and investment figures are signs that the Indian economy is on a firm footing
The Gross Domestic Product (GDP) figures in the first quarter of 2023 proved to be better than the forecasts of all economists, the Reserve Bank of India, and the government. In December 2022, the Monetary Policy Committee (MPC) had predicted GDP to be 4.2 per cent in the last quarter of the financial year 202223, but it stood at 6.1 per cent. The growth rate of the entire financial year also improved to 7.2 per cent over the initial estimates of 6.8 per cent.
In the quarter under review, the growth rate in the agriculture sector is recorded at 5.5 per cent, in the hotel industry at 9.1 per cent and in the construction sector at 10.4 per cent.
Along with the increase in GDP, investment and consumption are also seeing a boom. In the first quarter, an increase of 18.3 per cent in investment rate and 13.4 per cent in consumption was recorded. The main reason for the increase in investment is the Production-Linked Incentives (PLI) scheme of the government.
Inflation had remained at a high level continuously for the past years, but now the inflation is coming down. In the first month of the first quarter of the financial year 2023-24, the retail inflation rate decreased to 4.70 per cent in April, which was 5.66 per cent in March 2023. Inflation has registered a decline for the third consecutive month and has reached an 18-month low. Consequently, economic activities and public consumption are increasing.
The fiscal deficit of the Central government in the financial year 2023 was Rs 17.33 lakh crore — 6.4 per cent of the GDP. This is Rs 22,188 crore short of the revised target of Rs 17.55 lakh crore.
There are many reasons for the improvement in the economy. During 2022, a significant increase in the production of vehicles was recorded. Air and rail travel increased during this period. The steel and cement sectors also strengthened. The banking sector is continuously improving. In the financial year 2022-23, almost all government and private banks registered a tremendous increase in profits.
Due to the negative impact of the pandemic, the manufacturing sector grew at a mere 1.3 per cent in the financial year 2022-23, but the agricultural sector grew at 4 per cent. It is noteworthy that the growth rate of other sectors of the economy was also better than the manufacturing sector during this period.
An analysis of the last 4 years’ data reveals that the agriculture sector has registered a growth of over 19 per cent, while the manufacturing sector has registered a growth of 13 per cent. However, despite the strong growth in the agriculture sector, there has been a decrease in rural demand, which may be due to the severe deterioration of the economic condition of the villagers due to the pandemic. Despite this, in the March quarter of FY 2022-23, the size of agriculture exceeded manufacturing by 25 per cent, which used to be similar in size earlier at current prices.
In the financial year 2023, a 6 per cent increase in India’s exports was registered. Total exports during this period stood at USD 447 billion, while imports grew by 16.5 per cent to USD 714 billion. However, in the March quarter of the financial year 202223, imports registered a decline of 4.1 per cent due to softening of crude oil prices in the international market and a decrease in demand for various products due to sluggishness in the economy. At the same time, the trade deficit was reduced by 61 per cent, from USD 26.3 billion to USD 10.1 billion, due to a significant increase in exports. It contributed about 1.5 per cent to the economic growth during this period. In the last quarter, the value of rupee also remained stable, which gave relief from inflation and eased the import of essential products.
GST collection of Rs 1,57,090 lakh crore was done in May 2023, while GST collection of Rs 1,40,885 lakh crore was done in May 2022. In this way, an increase of 12 per cent has been recorded in GST collection on a year-on-year basis.
According to data from the Centre for Monitoring Indian Economy (CMIE), the unemployment rate stood at 8.11 per cent in April 2023, which was also 8.11 per cent in December 2022, while it was 7.8 per cent in March 2023. The unemployment rate in urban areas increased to 9.81 per cent in April, while it was 8.51 per cent in March 2023. However, in rural areas, this rate decreased from 7.47 per cent in March 2023 to 7.34 per cent in April. Evidently, the economy remained strong in the March quarter of the financial year 2022-23 and that is why the unemployment rate was low during this period.
The Indian economy is continuously improving. The latest figures of GDP, investment, consumption, and inflation are very positive. The acceleration in the growth rate of the agriculture sector is very pleasant. With the improvement in the condition of agriculture, employment opportunities will also increase, and the economic condition of the villagers will also improve. However, the decline in the growth rate of the manufacturing sector cannot be taken as a good sign.
Views expressed are personal
The economy remained relatively strong in the March quarter of the financial year 2022-23, and that is why the unemployment rate was low during that period