Q1 Numbers: Well Begun
The India Commentary view
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By Our Editorial Team
First publised on 2023-09-01 06:56:47
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The India Commentary view
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India's GDP grew at a healthy 7.8% in the first quarter of FY 23-24, in line with the estimates of most experts and marginally lower than the 8% estimated by the RBI in its August policy meeting. This figure assumes importance as from here on, growth is likely to be subdued according the RBI and most experts, given the rain deficit that is likely to negatively impact rural demand; high inflation that is likely to put curbs on discretionary spending of households and the state of the global economy that is likely to pull down exports further. The RBI has projected that the GDP growth will slow down to 6.5 per cent in the second quarter, fall further to 6 per cent in the third quarter and 5.7 per cent in the fourth quarter and the full year growth for FY 23-24 is likely to be only 6.5%.
It was the sterling performance of the services sector, especially financial, real estate and professional services which grew at a robust 12.2%, that led the 7.8% growth in the first quarter. Otherwise, agriculture was subdued and manufacturing, weighed down by falling exports, was up by just 4.7%. The good sign is that private investment has picked up to 8% and the sentiment in favour of increased private investment has been created by government of India's massive capital expenditure which increased by 59% to Rs 2.8 lakh crore in this quarter. Private consumption has also picked up - it grew 6% in this quarter against just 2.5% growth in the second half of last fiscal.
But going ahead, the Centre will find it difficult to maintain the scorching pace of capital expenditure for two reasons - one, tax collections are weak and gross revenue increased by just 3.3% in the first quarter and two, the government cannot borrow indiscriminately to fund capital expenditure as that will push up interest rates which in turn will act as a dampner for private investment. Also, if inflation remains elevated, private consumption will fall leading to less domestic demand for goods and services. Further, this being an election year, very soon the government might announce populist schemes that will drain the exchequer and put brakes on capital expenditure. Yet, if the economy grows at 6.5% for the full year in FY 23-24, it will still make India the fastest growing major economy.
