An excited spring in the economy

The NDA government at the Center has now officially entered the self-aggrandizing season. Thus praising oneself is considered a vile activity in the scriptures, but the NDA government has this characteristic from the very beginning. Now that the Lok Sabha elections are coming, self-praise becomes the way of self-salvation for every political party and candidate. But what is really worth mentioning in that autobiography is the economic strength of this government in spite of dire circumstances. The recovery in the Indian economy after the Corona epidemic has been stronger than expected. According to the National Statistical Office's second advance estimate, after registering a growth rate of 9.7 per cent in 2021-22 and 7 per cent in 2022-23, the Indian economy is expected to grow at a rate of 7.6 per cent in 2023-24.

In its first advance estimate, the statistics bureau projected a growth rate of 7.3 percent for the current year. This means that the economy will grow at or above 7 percent for the third year in a row, which should be considered a significant achievement, as the global economic environment has not been favorable at all. For example, developed economies are still grappling with the challenges of high inflation, which has resulted in a tightening trend in global financial conditions. On the other hand, the key drivers of growth, manufacturing and construction sectors are expected to grow at the rate of 8.5 percent and 10.7 percent respectively. Growth in agriculture and allied activities is expected to be much lower at around 0.7 per cent compared to last year's 4.7 per cent. So the employment problem is likely to become more serious. Because agriculture and construction sector alone shelter seventy percent of the total employment.

Of course, after many years the booming steps are heard in the construction sector. Along with the second advance estimates for the current year, the statistics bureau also released revised figures for previous years and estimates for the third quarter of the current year. The growth projection for 2022-23 has been revised downwards, which has also helped the current year's growth to be reflected in a somewhat higher figure. Meanwhile, the economy grew at a robust 8.4 per cent in the October-December third quarter and the manufacturing sector also saw double-digit growth due to this. After reforms, growth stood at 8.2 percent in the first three quarters of the current fiscal, indicating that its pace is expected to remain weak in the current quarter. Because if much of the total purchasing power of the market has been utilized then withdrawals in the latter half remain low.

Forecasts of the Indian economy growing at a strong pace for three consecutive years will boost the confidence of the Bharatiya Janata Party-led central government as it gears up for general elections. BJP has announced the first list of candidates and the blueprint of the second list is ready for some final changes. But the question is, can this momentum be sustained? The Reserve Bank of India expects the economy to grow at a rate of 7 percent in 2024-25. To be fair, a lot will depend on the nature and priorities of the new government or the new incarnation of the old government.

But the national accounts reveal a major underlying flaw. Private consumption expenditure is estimated to have grown by around 3.7 percent in the first nine months of the year, which is much lower than the economic growth rate figures. Although capital formation has increased by more than 10 percent, the private sector will not really be interested in increasing its capacity if private consumption remains weak. In recent years the government has started to focus on capital expenditure to improve growth but it is important to sustainably stimulate the private sector investment cycle to sustain the growth momentum. This will largely depend on consumption growth. However, a further increase in tax collection will give scope to the government to retain investment. For example, corporate and income tax collections have increased by more than 20 percent in the first 10 months of the year.

Barring geopolitical risks on the global front, macroeconomic conditions are expected to remain less volatile than in recent years. In terms of monetary policy, the strong economic growth rate and its own projections for the next fiscal year will give the monetary policy committee scope to focus on managing inflation without worrying too much about growth.