Given the desire to achieve developed country status in the next 25 years, the required rate is between 8% and 9%
Given the desire to achieve developed country status in the next 25 years, the required rate is between 8% and 9%
The National Statistics Office’s estimate of real GDP growth of 13.5% for the first quarter of 2022-23 is 2.7% points lower than the Reserve Bank of India’s earlier estimate of 16.2%. Assuming that the central bank’s estimates for the remaining three quarters of the fiscal year are achieved at 6.2% in 2Q, 4.1% in 3Q and 4% in 4Q, the annual GDP growth would have been 6.7% using the NSO’s 1Q estimate. Is. Compared to the COVID-19 GDP level of ₹35.5 lakh crore in the first quarter of 2019-20, the real GDP of ₹36.9 lakh crore shows a growth of only 3.8%. This indicates that the performance of the Indian economy is yet to fully normalize which would correspond to a growth of 6.5% to 7%. To reach an annual growth of at least 7%, GDP would have to grow at a rate of around 5% in the third quarter and fourth quarter of 2022-23.
growth structure
Among the eight Gross Value Added (GVA) sectors, Q1 growth performance exceeded the average of 12.7% in public administration, defense and other services (26.3%), trade, hotels, transport. and others. (25.7%), construction (16.8%), and electricity, gas, water supply and others. (14.7%). Agriculture growth remains strong, showing a growth of 4.5% in the first quarter of 2022-23, the highest growth in nine consecutive quarters. However, the growth of 4.8 per cent in the manufacturing sector is well below the overall average. A more relevant comparison would be to look at growth with respect to the respective production levels in the pre-COVID-19 normal year, that is, the first quarter of 2019-20.
In this comparison, manufacturing has outperformed with a growth of 7% in Q1 of 2022-23, while business, hotels, transportation and others. The sector has remained below its pre-COVID-19 levels by a margin of minus 15.5%. It was the main contact-intensive sector that suffered the most during COVID-19 and may show better recovery in successful quarters. Construction has also increased by a small margin of 1.2% as compared to its Q1 2019-20 level.
On the demand side, all major segments showed volumes in Q1 2022-23 that were higher than their respective levels in Q1 2019-20. The improvement in domestic demand is reflected in a growth rate of 25.9% in Private Final Consumption Expenditure (PFCE) and 20.1% in Gross Fixed Capital Formation (GFCF) as compared to the corresponding quarter last year. Compared to its 1Q 2019-20 levels, GFCF showed a growth of 6.7%. The ratio of Gross Fixed Capital Formation at current prices is 29.2% in Q1 of 2022-23 which is 1% higher than the investment rate of 28.2% in the corresponding quarter of last year.
The contribution of net exports to real GDP is negative at minus 6.2% in Q1 of 2022-23 as import growth exceeds export growth by a solid margin. Such an unfavorable contribution of net exports to real GDP growth is an all-time high for the 2011-12 base series. It is likely that import growth, both in real and nominal terms, will continue to exceed export growth, given the current high global prices of petroleum products and other intermediate inputs and rising demand for imports of intermediate goods into India. ‘Make in India’.
on feasibility
The Indian economy may still show a growth of over 7% in 2022-23, provided it performs better in the subsequent quarters, especially in the last two. Two important areas of policy support for this purpose would be to further increase the investment rate and reduce the magnitude of the negative contribution of net exports. High frequency indicators available for the first four to five months of 2022-23 indicate a sustained growth momentum.
The headline Manufacturing Purchasing Managers’ Index (PMI) stood at an eight-month high of 56.4 in July 2022. It remained as high as 56.2 in August 2022. PMI services stood at 55.5 in July 2022, indicating an expansion of 12 consecutive months. Bank credit outstanding by scheduled commercial banks (SCBs) increased by 15.3% in the fortnight ended August 12, 2022. Gross Goods and Services Tax collections stood at a high of ₹1.49 lakh crore and ₹1.43 lakh crore in July and August 2022, respectively. However, a good part of this may be due to the high inflation levels of both the Wholesale Price Index (WPI) and the Consumer Price Index (CPI).
As seen in the first quarter of 2022-23, the GVA growth has been led by public administration, defense and other services, showing a growth of 26.3%. This has been driven by frontloading of capital expenditure by the central government. The capital expenditure of the Center grew by 62.5% during the first four months of 2022-23. This momentum needs to be maintained. This will be facilitated by a sharp rise in the Centre’s gross tax revenue, which showed a growth of around 25% during the first four months of the current fiscal. Relatively higher tax revenue growth, in turn, is linked to nominal GDP growth at 26.7% compared to real GDP growth of 13.5 percent in the first quarter of 2022-23. Such a large gap between these two growth measures reflects a high implied price deflation (IPD) based inflation which is projected to be 11.6% in Q1 of 2022-23. This in turn is due to the ongoing WPI and CPI inflationary trends, where the former continues to surpass the latter. With tax revenue growth, fiscal policy can strongly support GDP growth without making any significant sacrifices on the budgeted fiscal deficit target.
increase investment rate
In the light of potential growth in 2022-23, how confident are we of achieving a growth rate of 6% to 7% on a normal basis? Given our desire to achieve developed country status in the next 25 years, the required growth rate is between 8% and 9%. We should strive to achieve a growth rate of 6% to 7% in 2023-24. The key to growth lies in increasing the investment rate. Public capital expenditure has increased. In crisis years, this is especially good. This can crowd in private capital expenditure. But it cannot be normal. There should be an increase in private capital expenditure, both corporate and non-corporate. It is reported that the capacity utilization in the industry has reached 75% in 4Q 2021-22. This should help attract private investment if demand for goods continues to rise. If we measure it from the trend line instead of the basis of 2019-20, the production loss due to COVID-19 and the resultant lockdown is high. If we maintained a growth of 7% in consecutive years from 2019-20, the real GDP would have been Rs 183.4 lakh crore in 2022-23. Even if we achieve 7% growth in 2022-23 as compared to 2021-22, there is a shortfall of ₹25.7 lakh crore at 2011-12 prices. The international environment for development is bleak. Developed countries are also afraid of recession. India’s growth trajectory over the next few years should depend on an uptick in domestic investment. Sector-wise growth in investment in removing barriers and creating a conducive environment should be the focus of policy makers.
C. Rangarajan is the former Chairman of the Economic Advisory Council to the Prime Minister and former Governor of the Reserve Bank of India. DK Srivastava is the former Director and Honorary Professor of the Madras School of Economics. Views expressed are personal