In the last three months of 2023, India’s GDP expanded at its quickest rate in 1.5 years, helped by robust manufacturing and construction activity that enhanced Prime Minister Narendra Modi’s economic record just months before a national election.
The third-largest economy in Asia expanded by 8.4% during the October–December quarter, considerably quicker than the 7.6% growth seen in the preceding three months and far faster than the 6.6% predicted by Reuters polling analysts.
According to economist Sunil Kumar Sinha of India Ratings, “the continuous growth momentum is indicative of the Indian economy’s resilience, notwithstanding global headwinds,” and the upward trend in industrial growth persisted during the quarter.
With China still failing to recover from the epidemic and the euro zone just avoiding recession, India’s economy is among the fastest growing in the world and has routinely outperformed market predictions.
India updated its growth projection from 7.3% to 7.6% for the current fiscal year, which ends on March 31.
Modi’s chances could be enhanced by such a great performance in the final significant economic data release before the May elections, since he has made robust economic growth a central tenet of his campaign trail speeches.
In a social media post, Modi stated that the rise in December “shows the strength of Indian economy and its potential.”
In an effort to help India compete with nations like Vietnam and Thailand, Modi has drastically increased government expenditure on infrastructure and provided incentives to increase the production of phones, electronics, drones, and semiconductors.
In the December quarter, the manufacturing sector, which has grown to make up 17% of Asia’s third-largest economy over the last ten years, rose by 11.6% year over year. Investment growth exceeded 10% for the second consecutive quarter, while the construction industry climbed by more than 9%.
According to CareEdge economist Rajani Sinha, “lower input costs supported manufacturing sector growth.”
60% of the GDP is derived from private spending, which increased 3.5% year over year during the quarter after declining 2.4% over the prior three months.
Spending by the government decreased 3.2% annually in the preceding quarter after growing 1.4% in the previous one.
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RURAL DEFICIENCIES
Due to unfavorable monsoon rains, the farm sector, which makes up 15% of the $3.7 trillion economy, has been struggling. In contrast to the 1.6% gain in the September quarter, it shrank by 0.8% in the December quarter.
Farm revenues were negatively impacted by slower rural expansion, and some farmers took to the streets to demand better procurement prices.
Major retail corporations including Hindustan Unilever (HLL.NS), opens new tab, and Britannia Industries (BRIT.NS) have experienced slower development as a result of rural weakness.
According to ICRA, the rate of increase in real rural wages was only 1% in 2023, following a roughly 3% decline in the previous two years. In contrast, typical incomes in metropolitan regions have been rising at a rate of around 10% annually.
Policymakers are still upbeat about the resurgence of rural areas, though.
Chief Economic Adviser V Anantha Nageswaran of the nation stated, “With the anticipated better value addition in the farm sector next financial year, rural demand growth and rural income growth will be even better and more evident in FY25.”
