Look at job market: Consumption growth is half of GDP’s. That’s worrying

India’s GDP growth for Jan-Mar quarter and also 2023-24 was higher than what most economists and even GOI’s statistics ministry forecast. GDP for 2023-24 expanded 8.2% to ₹173.8L cr, while the fourth quarter growth was 7.8%. The economy is doing well, with GDP receiving an unexpected boost from the relatively low economy-wide inflation rate, or deflator, of 1.4%. It’s also led to a surge in manufacturing growth.

Upside | Public investment is arguably the most important catalyst for economic growth today. Led by it, the overall fixed investment in 2023-24 expanded by 9% to ₹58.3L cr. Along with it, manufacturing has started firing. It grew 9.9% in 2023-24 to record ₹27.5L cr.

Challenges | Robust GDP growth hasn’t necessarily made decision-making easier for RBI and GOI. GVA growth, which measures supply side, has lagged GDP growth by a relatively large extent of over a percentage point in the last two quarters of 2023-24. Also, the large difference between the deflator and retail inflation complicates both monetary and fiscal policymaking.

Downside | The most puzzling aspect of GDP data is the weak growth rate of private consumption. This component grew 4% in 2023-24, growing at less than half the pace of total output. This may be on account of the deterioration in the quality of employment. For example, the Jan-Mar GOI urban jobs data showed that the proportion of self-employed has increased by more than a percentage point since the same period in 2022. Poor quality of jobs can be a drag on GDP.

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