 "Decoding GDP numbers: Consumption sluggish, govt capex powers investment")
India’s consumer demand remained feeble while robust capex push by the central government remained the key driver of economic growth during the December quarter of FY24.
According to the latest gross domestic product (GDP) data released by the National Statistical Office on Thursday, private final consumption expenditure (PFCE) grew at 3.5 per cent in the December quarter, accelerating from 2.4 per cent in the preceding quarter.
However, the gross fixed capital formation (GFCF), which is a proxy for investment demand, grew at double digits (10.6 per cent) for the second consecutive quarter during the current financial year.
Government spending as represented by the government’s final consumption expenditure (GFCE) during the December quarter, however, contracted by 3.2 per cent amid the tightening of the purse strings for revenue expenditure by the central and state governments.
As a share of nominal GDP, PFCE accounted for 63.6 per cent for the December quarter compared with 63.8 per cent during the same quarter a year ago.
In comparison, GFCE had an 8.5 per cent share in nominal GDP during the quarter compared to 9.3 per cent for the same period last year.
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The share of GFCF stood at 29.4 per cent versus 28.8 per cent in the corresponding period last year. Investment share in GDP above 30 per cent is usually considered important for driving economic growth.
Rajani Sinha, chief economist, CARE Ratings says that consumption growth has remained feeble, and going forward, the most critical aspect to watch out for is a broad-based improvement in consumption growth.
“In terms of the expenditure side, as expected the growth has been mainly led by strong capex by the Government. The other critical aspect would be a meaningful improvement in private investment. Overall robust GDP growth will be sustainable only when there is a meaningful improvement in consumption and private investment,” she added.
Echoing similar sentiments, Aditi Nayar, chief economist, Icra Ratings says that though the private final consumption expenditure growth inched up during the quarter, it remained tepid with rural demand perceived to be cautious after an unfavourable monsoon and urban demand assessed to be uneven as well.
India-Ratings principal economist Sunil Kumar Sinha says the ongoing growth momentum is indicative of the Indian economy’s resilience notwithstanding global headwinds.
“However, there are risks as well. Aggregate demand is largely driven by the government capex. Prevailing consumption demand is highly skewed in favour of goods and services consumed by the households belonging to the upper 50 per cent of the income bracket and therefore not broad based. This is reflected in the manufacturing growth which is also not broad-based,” he added.
The NSO also released the second advance estimates for GDP for FY24, which showed that the share of the PFCE for this fiscal year was expected to come in at 60.3 per cent of GDP compared with 60.9 per cent in FY23.
GFCE is expected to contribute 10.5 per cent to nominal GDP in FY24 as compared to 10.7 per cent in FY23. Meanwhile, the share of GFCF to nominal GDP is expected to increase to 31.3 per cent in FY24, as compared to 30.7 per cent in FY23.
Bank of Baroda chief economist Madan Sabnavis says the sharp rise in GFCF can be attributed more to government capex, roads, and housing as there is less anecdotal evidence of the private sector picking up sharply.