Mumbai: Economists said a pick-up in investment that offset sluggish consumption to boost India’s growth in 2022-23 is expected to boost the economy in the current fiscal as the government pushes ahead with massive capital expenditure plans. Is.
This, in turn, may reflect in sectors such as construction, which have a multiplier effect on the economy by creating jobs, ultimately creating consumption demand, he said.
“Investment demand is the only factor holding the fort,” Soumya Kanti Ghosh, chief economist at State Bank of India, wrote in a note.
Gross fixed capital formation, which reflects investment, grew 8.9% in the January-March quarter and 11.4% for the full fiscal year, showed data released on Wednesday.
Sajid Chinoy, chief economist for India at JP Morgan, said the central government’s capex push has been “incredible”, noting that states that were sluggish in spending in the first year also increased spending by 24% in the January-March quarter. increased by.
The central government has budgeted Rs 10 trillion in capex for this financial year.
The turning point comes after a decade when balance sheet stress in the economy kept investment in check. While government investment has picked up, there is likely to be a “moderate rush” of private investment in 2023/24, economists at ICICI Securities said in the note.
construction, manufacturing collision
JP Morgan’s Chinoy said the capex push over the last three years has brought growth in the construction sector closer to pre-pandemic levels.
The sector grew 10.4% in the fourth quarter and 10% for the full fiscal year.
Quantico Research economists Yuvika Singhal and Vivek Kumar said the construction sector indirectly helps absorb excess rural labor and create a multiplier effect on the overall economy in the medium term.
Economists are more apprehensive about the 4.5% growth seen in gross value added (GVA) in the manufacturing sector.
“We believe higher manufacturing GVA reflects gains from lower input costs,” said Nomura economists Sonal Verma and Aurodeep Nandy.
The surprising power in growth is also being partly attributed by economists to a statistical quirk.
The government calculates real GDP by adjusting nominal GDP growth with an inflation deflator linked to wholesale prices rather than retail prices.
At a time when wholesale inflation has turned negative, this could provide a statistical boost to manufacturing and overall GDP growth. “Therefore, there is a need to interpret the manufacturing and GDP data for the current quarter with caution,” said Chinoy of JP Morgan.
However, other indicators also show strength in demand.
The S&P Global India Manufacturing PMI rose to 58.7 in May – the strongest since October 2022.
consumption weakness
In contrast, private consumption grew at a sluggish 2.8% in the fourth quarter. Sequentially, consumption grew only 0.5% in the January-March period after contracting 2% in the previous three months.
“Higher inflation could be a major reason behind the sluggish performance in private consumption,” said Varma and Nandi of Nomura.
(Reporting by Ira Dugal; Editing by Dhanya N Thoppil)
Disclaimer: This report is generated automatically from Reuters news service. ThePrint is not responsible for its content.