The headline gross domestic product (GDP) growth number for the October-December quarter (Q3) of FY24 is a stunning 8.4%, even if the base is a very modest 4.3% in the same period a year ago. At the same time, there are several pressure points. For instance, it is worrying that investments rather than consumption continue to do the heavy-lifting. In the third quarter, for example, gross fixed capital formation (GFCF) has gone up by 10.6%. While this is undoubtedly a good number, the fact is that the growth in the base quarter was a very slow 5%, having been revised down sharply from 8%. That then takes away much of the cheer because clearly even investments are not picking up as expected. In fact, while manufacturing has clocked an impressive growth of 11.6%, it comes off a very weak base of a negative 4.8%. It’s not as though all services are doing that well either. The construction space, however, continues to grow at a good pace-9.5%-ostensibly driven by the booming real estate sector. This augurs well for daily workers.
Unfortunately, the biggest segment of the economy, which is private consumption, as measured by the private final consumption expenditure (PFCE), continues to perform poorly. The PFCE has grown at an anaemic 3.5% y-o-y in what is supposed to be festive season and therefore, strongest quarter. This is all the more disappointing because the growth comes off a weak base of 1.8% y-o-y in Q3FY23, which reported the slowest growth in 12 quarters. Not just that, the PFCE for Q2FY23 has been revised down to just 2.4% from 3.1% earlier. It’s very clear now that a large section of the population lacks the disposable income that can boost consumption demand and that much of the spending is being done by the affluent. Government consumption contracted during the December quarter, suggesting the government is becoming mindful of its debt obligations. Since the government is unlikely to be able to continue with the level of capital expenditure allocated in the past few years, it is important that the private sector steps in.
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That the agriculture space contracted in Q3FY24 is a concern, though the base, at 5.2% y-o-y, was a strong one. Already real rural wages have been contracting for more than a year or have remained stagnant. Lower farm incomes could lower living standards. The distress in rural India, as seen in the sales volumes of a host of products, is clearly weighing on consumption. Also, the wage bill for a sample of 2,000 companies and banks, went up by just 10.4% y-o-y in the December, 2023 quarter compared with 15% y-o-y in the September quarter, 17%y-o-y in the June quarter and nearly 20% y-o-y in the March, 2023 quarter. The job market doesn’t seem to be offering enough opportunities to support consumption. The negative net exports in the December, 2023 quarter at around Rs 76,000 crore, are also much higher than in the preceding quarter and reflect the headwinds in global trade.
Also Read Partnership pays: Many Chinese firms are forming joint ventures with Indian players—that’s the way to go India’s Military Capability Enhancement and Defence Procurements Purchasing power (dis)parity: Household consumption lagging GDP, needs course correction The evolution of AIF regulation The Reserve Bank of India (RBI) might believe the economy is chugging along nicely and there is no need to bring down interest rates. But there is clearly a dissonance between the headline numbers and the granular data. The RBI must take cognisance of the very weak consumption demand, the rural distress and the unemployment.
The headline gross domestic product (GDP) growth number for the October-December quarter (Q3) of FY24 is a stunning 8.4%, even if the base is a very modest 4.3% in the same period a year ago. At the same time, there are several pressure points. For instance, it is worrying that investments rather than consumption continue to do the heavy-lifting. In the third quarter, for example, gross fixed capital formation (GFCF) has gone up by 10.6%. While this is undoubtedly a good number, the fact is that the growth in the base quarter was a very slow 5%, having been revised down sharply from 8%. That then takes away much of the cheer because clearly even investments are not picking up as expected. In fact, while manufacturing has clocked an impressive growth of 11.6%, it comes off a very weak base of a negative 4.8%. It’s not as though all services are doing that well either. The construction space, however, continues to grow at a good pace-9.5%-ostensibly driven by the booming real estate sector. This augurs well for daily workers.
Unfortunately, the biggest segment of the economy, which is private consumption, as measured by the private final consumption expenditure (PFCE), continues to perform poorly. The PFCE has grown at an anaemic 3.5% y-o-y in what is supposed to be festive season and therefore, strongest quarter. This is all the more disappointing because the growth comes off a weak base of 1.8% y-o-y in Q3FY23, which reported the slowest growth in 12 quarters. Not just that, the PFCE for Q2FY23 has been revised down to just 2.4% from 3.1% earlier. It’s very clear now that a large section of the population lacks the disposable income that can boost consumption demand and that much of the spending is being done by the affluent. Government consumption contracted during the December quarter, suggesting the government is becoming mindful of its debt obligations. Since the government is unlikely to be able to continue with the level of capital expenditure allocated in the past few years, it is important that the private sector steps in.
That the agriculture space contracted in Q3FY24 is a concern, though the base, at 5.2% y-o-y, was a strong one. Already real rural wages have been contracting for more than a year or have remained stagnant. Lower farm incomes could lower living standards. The distress in rural India, as seen in the sales volumes of a host of products, is clearly weighing on consumption. Also, the wage bill for a sample of 2,000 companies and banks, went up by just 10.4% y-o-y in the December, 2023 quarter compared with 15% y-o-y in the September quarter, 17%y-o-y in the June quarter and nearly 20% y-o-y in the March, 2023 quarter. The job market doesn’t seem to be offering enough opportunities to support consumption. The negative net exports in the December, 2023 quarter at around Rs 76,000 crore, are also much higher than in the preceding quarter and reflect the headwinds in global trade.
The Reserve Bank of India (RBI) might believe the economy is chugging along nicely and there is no need to bring down interest rates. But there is clearly a dissonance between the headline numbers and the granular data. The RBI must take cognisance of the very weak consumption demand, the rural distress and the unemployment.
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Pleasant surprise: But the weak consumption numbers cast a shadow over the headline GDP data in Q3
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02.03.2024
The headline gross domestic product (GDP) growth number for the October-December quarter (Q3) of FY24 is a stunning 8.4%, even if the base is a very modest 4.3% in the same period a year ago. At the same time, there are several pressure points. For instance, it is worrying that investments rather than consumption continue to do the heavy-lifting. In the third quarter, for example, gross fixed capital formation (GFCF) has gone up by 10.6%. While this is undoubtedly a good number, the fact is that the growth in the base quarter was a very slow 5%, having been revised down sharply from 8%. That then takes away much of the cheer because clearly even investments are not picking up as expected. In fact, while manufacturing has clocked an impressive growth of 11.6%, it comes off a very weak base of a negative 4.8%. It’s not as though all services are doing that well either. The construction space, however, continues to grow at a good pace-9.5%-ostensibly driven by the booming real estate sector. This augurs well for daily workers.
Unfortunately, the biggest segment of the economy, which is private consumption, as measured by the private final consumption expenditure (PFCE), continues to perform poorly. The PFCE has grown at an anaemic 3.5% y-o-y in what is supposed to be festive season and therefore, strongest quarter. This is all the more disappointing because the growth comes off a weak base of 1.8% y-o-y in Q3FY23, which reported the slowest growth in 12 quarters. Not just that, the PFCE for Q2FY23 has been revised down to just 2.4% from 3.1% earlier. It’s very clear now that a large section of the population lacks the disposable income that can boost consumption demand and that much of the spending is being done by the affluent. Government consumption contracted during the December quarter, suggesting the government is becoming........
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