Good Show By The Economy in FY23
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
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By Linus Garg
First publised on 2023-06-01 14:26:23
About the Author
Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
View all posts by this Author
The economic data pertaining to the performance of the economy in Q4 and the full FY23 shows that India is an oasis in what is becoming a global economic desert. While economies around the world are grappling with slowdowns, India's GDP grew at 6.1% in the fourth quarter of the last fiscal and 7.2% for the full year. These are heartening figures that beat all official and private estimates. They also show that the Indian economy is resilient and has come out of the disruption caused, first by the pandemic and then by the war in Ukraine.
The growth was broad-based and most sectors performed well but it was the services sector which was the star. It grew at 7.1% in Q4 and services export helped bridge the gap substantially between imports and exports. Agriculture grew at 5.5% in Q4 while construction grew at 10.4%. Manufacturing also turned the corner and showed healthy growth.
Another heartening factor was that fixed capital formation, the barometer of investment in the economy, grew at 8.9% in Q4. At Rs 15.3 lakh crore, it was 35.3% of the GDP and the highest level it has reached after the pandemic. The government also showed fiscal responsibility and maintained the 6.4% fiscal deficit target.
The only big worry was the slow pace of growth in private consumption. It grew at just 2.8% in Q4 and after the 2.2% growth registered in Q3, this was the second successive quarter where growth in private consumption has remained below 3%. As rate hikes take time to take effect, it is now clear that consumers, burdened by high payouts in EMIs after successive policy rate hikes by the RBI, are consuming less or postponing purchases.
Going ahead, if the monsoon is normal and crop yield high, it will reduce inflation further. In any case, core inflation is not as sticky as it was in Q3. In that scenario, the RBI will hold rates or may even start cutting it from Q3 in FY24. That, along with increased government spending in an election year, will boost private consumption and help the economy beat estimates in FY24 too.
