The latest official GDP estimates would in normal circumstances be a cause for cheer, pointing as they ostensibly do to a double-digit expansion in economic output in the first quarter. The NSO’s projection of 13.5% growth in gross domestic product from the year-earlier April-June period, however, is disconcertingly slower than the 16.2% pace that the Reserve Bank of India (RBI) had projected just last month and points to an economy that is still in search of a firmer footing. Faced with headwinds — signs of a global recession and the Ukraine war — the first-quarter’s underwhelming momentum may pitch the economy into a far shallower growth trajectory even as faster-than-acceptable inflation erodes consumer confidence. Output in the eight broad sectors that combine to provide the Gross Value Added (GVA) shows that while year-on-year all sectors expanded, with public administration, defence and other services growing 26.3%, six of these sectors posted sequential contractions. Only two services sectors — electricity, gas, water and other utility services, and financial and professional services — logged expansions from the January-March quarter, growing by 12.6% and 23.7%, respectively. The major employment-providing sectors of agriculture, manufacturing, construction and the contact-intensive trade, hotels and transport services sector suffered quarter-on-quarter contractions of 13.3%, 10.5%, 22.3% and 24.6%, respectively.
The demand side has flattered to deceive. Private final consumption expenditure, the essential bulwark of the economy, appeared to have revived with a year-on-year expansion of 25.9% lifting its share in the GDP to just shy of 60%. However, when viewed sequentially, the estimated ₹22.08 lakh crore of private consumption spending in April-June 2022 was a not insignificant ₹54,000 crore, or 2.4%, less than what was spent in the preceding quarter. And both government spending and gross fixed capital formation, which is viewed as a proxy for private investment, shrank quarter-on-quarter by 10.4% and 6.8%, respectively, undermining overall output. That GDP, in fact, contracted 9.6% sequentially should be a cause for concern among policymakers. Given that this year’s monsoon has distributed rains in an erratic scattershot pattern that has caused disruptive flooding in some parts while leaving key paddy and pulses growing areas in northern and eastern India moisture deficient, both farm output and consumer spending in the rural hinterland are likely to take a hit. And with global trade also becalmed amid the sharp slowdown in advanced economies, India’s merchandise exports are sure to weaken in momentum, any benefits from the rupee’s depreciation against the dollar notwithstanding. With the RBI needing to stay laser focused on taming inflation, the onus is on fiscal authorities to spur consumption and investment.