The former governor also said during the December 2022 chat with Rahul Gandhi that next year is going to be more difficult than this one. “Of course, this one had a lot of difficulties with the war and all that. Growth is going to slow in the world. People are raising interest rates that bring down growth,” he said.
While talking with Congress leader Rahul Gandhi, the former governor of the Reserve Bank of India said, “India is also going to be hit. India’s interest rates have also gone up but Indian exports have been slowing quite a bit.”
India’s GDP growth surprises on the upside
India’s economic growth surged to its fastest rate in eighteen months during the final quarter of 2023, driven by robust manufacturing and construction activities. With a growth rate of 8.4% in the October-December period, India surpassed the 6.6% forecasted by economists surveyed by Reuters and exceeded the 7.6% growth recorded in the preceding three months. Furthermore, India revised its growth projection for the fiscal year ending on March 31 to 7.6%, up from the earlier estimate of 7.3%.
The Modi administration has substantially augmented infrastructure spending and introduced incentives to stimulate the manufacturing of electronics, phones, drones, and semiconductors, aiming to enhance India’s competitiveness vis-à-vis countries like Vietnam and Thailand. The manufacturing sector, constituting 17% of the economy, expanded by 11.6% year-on-year in the December quarter. Investment growth surpassed 10% for the second consecutive quarter, while the construction sector saw growth of over 9%.
Why some economists remain cautious
Nonetheless, a notable concern lies in the rural sector’s weakness. The agriculture segment continued to face challenges due to unfavorable monsoon rains, contracting by 0.8% in the December quarter compared to a 1.6% growth in the previous quarter. Despite this, policymakers express optimism regarding rural recovery.
Some economists advise caution in interpreting the Q3 GDP growth figures, highlighting a more subdued increase in gross value added (GVA), which is seen as a purer measure of economic growth as the computation of GDP includes indirect taxes and excludes government subsidies. For the third quarter, GVA grew at 6.5% compared to the 8.4% GDP growth.
Citi economist Samiran Chakraborty underscored the significance of this gap, noting that the divergence is likely attributed to increased tax collections and reduced government subsidies during the quarter. “The above-8% real GDP print should be read with caution given the large gap with GVA, decline in agriculture activity and two-paced economic growth (investment far outpacing consumption), Citi economist Samiran Chakraborty said in a note on Thursday. (With Agency Inputs)
