Good growth, low demand: On the NSO projection
Government spending seems to be propping up growth
The first advance estimates of national income for the current fiscal-year present a picture of an economy on steroids — of government spending. While the NSO has made bold to project real GDP growth marginally quickening to a 7.3% pace , from 2022-23’s 7.2%, scrutiny of sectoral output figures that together form the gross-value added, and the demand data reflected in expenditure numbers posit an economy still searching for durable drivers of consumption-led growth. While overall GVA growth is seen slowing to 6.9%, from the preceding fiscal’s 7%, the agriculture, livestock, forestry and fishing sector — the bedrock of the rural economy, one of the largest providers of work and the second-largest generator of economic value outside the services economy — will see output expanding by 1.8%, the slowest in eight years and less than half of 2022-23’s 4% pace. And even this pace of growth may be optimistic given the estimated shortfall in kharif output and lag in rabi sowing, particularly in paddy and pulses. Equally, the second-largest component of the services economy, the omnibus trade, hotels, transport, communication and broadcasting sector — also a large provider of jobs — is estimated to witness more than a halving in the pace of growth — to 6.3%, from 14% last fiscal. Here too, the estimates reflect the trend evident in the NSO’s November 30 release of second-quarter GDP estimates, and underscore the underlying loss of momentum in the post-pandemic rebound in services.
On the demand side, private final consumption expenditure — the largest component of GDP with a share that till two decades ago exceeded 60% — is projected to log its slowest non-pandemic year expansion in more than 20 years. At 4.4%, private consumption spending growth is estimated to have been at its lowest ebb since the pandemic and accompanying lockdowns caused spending to contract by more than 5% in 2020-21, and just over half of 2022-23’s 7.5% pace. With the rural economy struggling under the impact of the monsoon vagaries and the resultant weakness in farm output, demand for producers of a range of goods from soaps and detergents to packaged foods and two-wheelers is yet to regain any kind of vigour in the hinterland . Gross-fixed capital formation, which includes government capital spending, remains the main bright-spot and driver of momentum. The NSO pegs GFCF growing 10.3% to reach a record 34.9% share of GDP this fiscal. With the general election just ahead, policymakers face an unenviable choice — keep the spending spigot fully open to prop up growth at the risk of fiscal slippage , or tighten the purse strings and risk further loss of momentum.