GDP: It All Comes Down To Demand

Source: The post is based on the article “GDP: It All Comes Down To Demand– Growth is being driven by booming public investment. Private firms are still unsure. For them to invest, consumption needs to grow faster” published in “The Times of India” on 7th September 2023.

Syllabus: GS3- Economy- Indian economy

News: The article discusses India’s economic growth, highlighting the strong performance of key sectors. It also points out concerns like the weak monsoon, declining exports, skewed consumption patterns, and the need for more private investments.

What is the growth scenario in India?

India’s Growth Scenario:

GDP Growth: India recorded a 7.8% GDP growth in Q1 FY 23-24, suggesting a robust economic recovery.

Leading Sector: The services sector emerged as the primary growth driver, witnessing a substantial 10.3% increase. For instance, there was notable demand in travel, tourism, and financial services.

Manufacturing Uptick: The manufacturing sector experienced a revival, growing by 4.7%. This improvement came after the sector faced challenges due to high raw material costs, which have since decreased.

Construction’s Role: The construction sector is also on an upward trajectory, benefitting from the government’s emphasis on infrastructure development.

Domestic Spending: There’s a positive sign in domestic consumption, which went up by 4.9% in Q1 23-24. However, this surge is primarily seen in the higher income category.

Investment Landscape: The government currently spearheads investments. For instance, their capital expenditure surged by 59%, overshadowing private sector investment.

Export Challenge: India faces challenges in the export domain, with a decline of 7.7%, largely attributed to the global slowdown.

What are the major concerns to India’s economy?

Major Concerns to India’s Economy:

Weak Monsoon: The deficient monsoon is a concern, affecting agricultural growth. With a growth of just 3.5%, it might lead to higher food prices, impacting the broader economy.

Exports Decline: There’s a 7.7% contraction in exports in Q1 FY 23-24. The global slowdown, especially in merchandise exports, poses challenges to external trade.

Skewed Consumption: While domestic spending increased by 4.9%, consumption largely leans towards the higher income group, indicating a ‘K’ shaped recovery. This can lead to disparities in economic benefits.

Limited Private Investment: Even with promising signs, private sector investment remains restricted. The government is leading, but private sector involvement is essential for sustained growth.

External Threats: With global GDP growth projected to slow further, India faces potential challenges in exports and global economic ties.