Growth sans demand – Analysis of First Advance Estimates of National Income for the Current Fiscal Year | 10 January 2024 | UPSC Daily Editorial Analysis

What's the article about?

• It talks about the first advance estimates of the national income for the current fiscal year, highlighting the key findings and implications for the economy.

Relevance:

• GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment

Context:

• It provides an in-depth analysis of the Indian economy's performance based on the first advance estimates of national income for the fiscal year.
• The estimates indicate a mixed picture, with certain sectors showing a slowdown in growth.
• The article discusses the performance of various sectors and the implications for the overall economy, as well as the challenges and choices facing policymakers.

Analysis:

• Government Spending Propels Growth, But Durable Drivers Lacking:
  • The Indian economy is projected to grow at a 7.3% pace in the current fiscal year, marginally higher than the 7.2% growth recorded in 2022-23. However, a closer look at the sectoral output figures reveals that the economy is still searching for durable drivers of consumption-led growth.
  • Overall GVA growth is seen slowing to 6.9%, from the preceding fiscal's 7%.
  • The agriculture sector, the bedrock of the rural economy, is expected to see output expanding by 1.8%, the slowest in eight years.
  • The trade, hotels, transport, communication and broadcasting sector is also estimated to witness a more than halving in the pace of growth.
• Rural Economy Sputters, Services Lose Momentum:
  • The rural economy is struggling under the impact of the monsoon vagaries and the resultant weakness in farm output.
  • Private final consumption expenditure growth is estimated to have been at its lowest ebb since the pandemic.
• Private Consumption Growth at Lowest Level in Over Two Decades:
  • Private consumption spending growth is projected to log its slowest non-pandemic year expansion in more than 20 years.
  • With the rural economy struggling, demand for a range of goods is yet to regain any kind of vigour.
• Government Spending Faces Dilemma as Elections Loom:
  • Gross fixed capital formation, which includes government capital spending, remains the main bright spot and driver of momentum.
  • 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.

Way Forward:

• The Indian economy is at a critical juncture. While government spending is providing a temporary boost, the lack of durable drivers of growth is a cause for concern. Policymakers need to focus on reviving private consumption and investment in order to ensure long-term sustainable growth.