GDP exceeds expectations

The growth numbers are just what RBI needs to hold rates next week; ahead of the 2024 polls, the BJP couldn’t have asked for more

India’s Gross Domestic Product (GDP) growth for the last quarter of 2022-23, as well as the entire financial year, sharply exceeded the estimates of most economists, coming in at 6.1% and 7.2% respectively. The government’s own estimate for the year’s growth was only 7%. The yearly number indicates the resilience of the Indian economy in a year when geopolitical factors and oil prices were expected to leave their mark on the numbers. 

For the BJP government, 7.2% is the last full-year growth number with which it will go to the 2024 national elections and it couldn’t have asked for more.(Representative image)

The numbers are just what the Reserve Bank of India’s Monetary Policy Committee needs to hold rates (again), indicating that it is indeed “pivoting” its monetary policy, especially given that inflation has come down sharply with even core inflation not looking as sticky as before. The growth was driven by services (no surprises there; this has been the standout sector for a while), government spending on capex (again, no surprise), exports, and agriculture. Even manufacturing grew 4.5% in the last quarter, although growth in the entire year was only 1.3%, and many experts expect the sector to continue to struggle in 2023-24.

The worrying aspect was the 2.8% growth in private consumption spends in the last quarter, which, while higher than the 2.2% seen in the previous quarter, is still low. Given its importance in growth, and the impact that higher interest rates are having on the consuming classes — mortgage tenures have increased, causing many consumers to start skimping on other spends — this could well be a trigger for the central bank to consider a rate cut, perhaps just before the festive season. That could well mark the beginning of a rate-cutting cycle.

While the economy is likely to have carried some of the momentum from the last year into this financial year, a slowdown in exports (on account of global factors), and tepid consumption may affect growth in 2023-24, although the biggest imponderable, for growth as well as sentiment remains the performance of the southwest monsoon, which may be affected by the emergence of the El Nino phenomenon. The government has put 2023-24 growth at around 6.5%.

For the Bharatiya Janata Party-led National Democratic Alliance government, 7.2% is the last full year growth number with which it will go to the 2024 national elections — it will see the figure as a vindication of its economic policies post-Covid — and it couldn’t have asked for more.