Will India's economic growth momentum continue into FY24?

We are now going through the hottest period of this summer. Rohini karthe, considered as the hottest two-week period in this part of the world, started on May 25. It will end on June 8, bringing curtains on the simmering summer season, paving the way for a pleasant rainy season. As per astrological calculations, the sun passes through Rohini nakshatra during this two-week period.

In my childhood days, elders used to warn us not to venture out during this time. This practice still exists in villages if I am not wrong. Anyway, we have reached a stage where it's not easy to survive in summers without an air conditioner as temperatures are soaring year-after-year and scorching heat has become the order of the day. But we had uber cool news during this year's hottest period.

On May 31, the National Statistical Office (NSO), a part of the Union Ministry of Statistics and Programme Implementation (MoSPI), released India's latest gross domestic product (GDP) data for the fourth quarter and full financial year, both ending on March 31, 2023. Though the full financial year GDP numbers for FY23 are also of significance, the data for the final and fourth quarter i.e. January-March 2023 is more important as the key growth indicators for the previous three quarters are already in the public domain.

Frankly speaking, the fourth quarter macroeconomic numbers presented a pleasant surprise as the key growth indicators exceeded all expectations. In its annual report, the Reserve Bank of India (RBI) projected the Q4FY23 GDP growth rate to be at 5.1 per cent while State Bank of India (SBI), India's largest lender, saw the growth for the final three months of FY23 at 5.5 per cent. Analysts and rating agencies projected far lower growth for the last quarter. Exceeding all these projections, India's economy grew at 6.1 per cent during January-March 2023 against 4.1 per cent in the same period a year ago. The GDP growth came at 4.4 per cent in the preceding quarter i.e. October-December 2022. This implies that the country's GDP clocked incremental growth both sequentially and year-on-year. The quarter-on-quarter incremental growth was by 1.5 percentage points while it was two percentage points year-on-year.

Going by the official data, barring the public administration, defence and other services segment, all other segments of the economy did well in Q4FY23 as compared to the year-ago period. But major push came from agriculture, manufacturing and construction. The Modi government's push on infrastructure seems to be yielding good results.

Naturally, the higher-than-expected Q4FY23 GDP numbers pushed up the full financial year growth to 7.2 per cent in FY23 and helped India to retain the world’s fastest growing major economy tag. In value terms, the Indian GDP stood at Rs 160.06 lakh crore as on March 31, 2023. But most agencies and analysts underestimated the FY23 GDP growth to be below seven per cent. On the full financial year front too, agriculture sector turned out to be the bright spot with its gross value addition (GVA) growing by four per cent in FY23 from 3.5 per cent in FY22. Mining & quarrying was a dampener with GVA going up by just 4.6 per cent against seven per cent a year ago. So was the manufacturing, whose GVA clocked just 1.3 per cent upswing in FY23 against a double-digit growth of 11.1 per cent in FY22. This amply reflected the fact that overseas investments into the manufacturing sector came down drastically in the last financial year. However, financial, real estate and professional services also did well with 7.1 per cent upward trajectory from 4.7 per cent in FY22. Private consumption share in GDP also inched up to 58.5 per cent last fiscal. However, it's a fact that FY23 GDP growth is much lower than that of FY22, which came at 9.1 per cent with total real GDP estimated at Rs 149.26 lakh crore. But the global economy has been facing many headwinds in the last one year due to the Russia-Ukraine war and the aftershocks of Covid. For India to clock 7.2 per cent growth amidst all this, is commendable. Obviously, this higher growth bodes well for the country.

Anyway, the latest GDP numbers have come as a shot in the arm for the BJP government at the Centre as the saffron party lost the recent Karnataka Assembly elections by a wide margin. The party will invariably showcase these GDP growth numbers in future elections. Prime Minister Narendra Modi tweeted on the day the data was out, saying that the GDP growth numbers underscored 'the resilience of the Indian economy amid global challenges'.

But the key question is whether this growth momentum will continue.

From the International Monetary Fund (IMF) to the United Nations (UN), a majority of global agencies described India as a bright spot on the global economic landscape now and pegged the country's growth in 2024 to remain between 5.5 per cent and six per cent. But RBI has put the FY24 growth forecast at a higher 6.5 per cent. However, SBI is more optimistic as it has recently said that the Indian economy will grow at 6.7 per cent in FY24, despite global headwinds. This is going to be an election year with five States going to polls followed by the General Elections next summer. So, consumption will obviously go up during these elections.

As per some surveys, Modi is still the most popular leader in the country and is way ahead of his nearest rival, Rahul Gandhi of Congress. That means Modi may score a hat-trick as the Prime Minister of India unless something else comes between now and the General Elections.

This political stability and expected rise in spending levels will obviously fuel economic growth in the current financial year despite global odds such as recessionary trends in Europe and rising inflationary pressures across the developed world. So, India is likely to clock a decent growth of around seven per cent this fiscal as well. And that kind of growth is essential for India to achieve its 5-trillion-dollar economy dream from the present $3.3 trillion at current prices. India has potential and is well-placed to achieve this landmark. But it obviously needs a right policy push. That's for sure.