GDP | India’s growth dynamics are lopsided

The NSO’s GDP estimates for Q2 2024 have brought joy, but a deeper look at the internals of the first half of 2024 and its juxtaposition to the five-year growth makes a more sombre reading

On November 30, the National Statistical Office (NSO) announced an excellent 7.6 per cent GDP growth for the second quarter of 2023-2024 (Q2 2024), which also maintained the half-year (H1 2024) growth at a high of 7.7 per cent.

There is an understandable and justifiable sense of joy and patting on the back by those close to the government at this top-of-the-line performance. A deeper look at the internals of the H1 2024 performance and its juxtaposition to the five-year growth context, however, makes a more sombre reading.

Robust industry, poor services growth

Three of the eight broad sectors in gross value added (GVA) which make up the industry — mining and quarrying, manufacturing, and utilities — have produced spectacular double-digit GVA growth of 13.15 per cent in Q2 2024, with manufacturing registering a jaw-dropping growth of 13.91 per cent.

Services, which make up almost 65 per cent of the GVA comprising four broad sectors — construction, trade and communications, financial & IT services, and public services — however, recorded a tepid growth of 6.65 per cent. The trade and communications sector grew by only 4.26 per cent. Excluding construction, services GVA (which has a 56.8 per cent share) recorded a low growth of 5.8 per cent.

The agriculture sector also produced a trend-defying low GVA growth of 1.22 per cent.

All put together, the important message from the Q2 2024 GVA numbers is that the growth dynamics are indeed lopsided. The extraordinary performance of the industrial and construction sectors is hiding underneath poor performance in the rest of the economy.

No lift-up to five-year performance

India’s GVA, at basic prices, in the first half of 2018-2019 (H1 2019) was Rs 62.78 trillion. The GVA in H1 2024 has come out at Rs 76.03 trillion. This yields five-year first-half GVA growth of only 3.9 per cent. The growth record is nothing to crow about.

There is a bigger worrying news in sectoral numbers.

The mining and quarrying sector has recorded a five-year first-half GVA growth of only 0.82 per cent. The trade and communications segment of the economy, which is as large as manufacturing, has seen a growth of only 2.11 per cent (from Rs 12.23 trillion in H1 2019 to Rs 13.57 trillion in H1 2024) in five years.

Manufacturing growth of 13.91 per cent, responsible for the outstanding Q2 2024 performance, could lift up five-year manufacturing growth to only 3.82 per cent, still less than the overall GVA growth of 3.9 per cent.

Overall, a substandard five-year performance is evident starkly in the fact that the best performing sector financial and real estate sector could also record a GVA growth of only 5.28 per cent.

Instead of celebrating the quarterly performance, it will be worthwhile to introspect and design policy and programmes to put the Indian economy on a long-term high growth path of 8-10 per cent.

Lower nominal growth might hide downside surprises

Manufacturing growth for H1 2024 is showing a bizarre trend. Real GVA manufacturing growth is 13.9 per cent in Q2 2024 (4.7 per cent in Q1 2024) and 9.3 per cent in H1 2024. Nominal GVA growth, however, is at 11.5 per cent in Q2 2024 (1.9 per cent in Q1 2024) and 6.7 per cent in H1 2024.

Higher manufacturing growth in constant 2011-2012 prices and lower growth in current prices usually are quite abnormal and indicate demand contraction.

There are some questions about the method of how the NSO estimates the GVA in constant prices while deflating using the inflation numbers.

It is quite likely that the industrial and construction GVA growth numbers are revised downwards at the time of determining provisional growth numbers for 2023-2024.

Expenditure side story confirms weak consumption

People’s consumption, represented by the private final consumption expenditure (PFCE), recorded growth of only 8.29 per cent in Q2 2024 in current prices; this is lower than the 9.06 per cent in Q1 2024, thereby reducing H1 2024 private consumption growth to 8.69 per cent.

In real prices, the consumption growth in H1 2024 was only 5.45 per cent.

Real private consumption growth over five years, since 2018-2019 in the first half, has been only 4.38 per cent, which confirms weak consumption contribution to the overall GDP growth. This indicates a continuation of a discernible squeeze in the quality of consumption by the people.

$5 trillion GDP is still away

The upward momentum in H1 2024 GVA/GDP growth makes it fairly certain that India’s real GDP growth in 2023-2024 will be around 7 per cent.

This growth, however, will still be insufficient to alter the low growth trajectory of the Modi Government’s five-year performance. For the term of Modi 2.0, India will record a compounded annual GDP growth of only about 4 per cent.

Even if we assume a 9 per cent nominal GDP growth in 2023-2024, in current prices, over the Rs 272 trillion GDP in 2022-2023, the nominal GDP for 2023-2024 will be around Rs 296 trillion. With the US dollar expected to average about Rs 83.25 for the year, India’s GDP in US dollars is likely to be only about $3.55 trillion for the year —that’s less than $3.89 trillion which the IMF is projecting.

An industrialist, among others, claimed that India became a $4 trillion economy. It has not. The $5 trillion GDP goal is still some years away.

(Subhash Chandra Garg is former Finance & Economic Affairs Secretary, and author of ‘The Ten Trillion Dream’ and ‘We Also Make Policy’.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.