Indian Economy Remains Strong – GDP Data and World Bank IDU Report
The Indian economy remains strong according to the World Bank. Recently, the estimates of the Gross Domestic Product (GDP) for the first quarter were released by the National Statistics Office (NSO). In this article, we are going to see what the NSO’s First Quarter GDP data talks about and what has World Bank has to say about India’s growth story.
NSO’s Estimates of GDP for the First Quarter (April-June) of 2024-25
On 30th August 2024, the NSO released Estimates of Gross Domestic Product for the First Quarter (April–June) 2024-25.
According to NSO estimates of GDP for the first quarter, the real GDP has been expected to grow at 6.7% in FY 2024-25 in comparison to 8.2% in Q1 of FY 2023-24. Nominal GDP witnessed a growth of 9.7% in Q1 of FY 2024-25 as compared to the growth of 8.2% in Q1 of FY2023-24.
The Press Release of NSO stated that the Real Gross Value Added (GVA) has grown by 6.8% in Q1 of FY 2024-25 over the growth of 8.3% in Q1 of the previous financial year.
Source: Press Note, Quarterly Estimates of GDP for Q1 (i.e. April-June) of FY 2024-25, NSO, MoSPI
The growth has been mainly driven by the Secondary Sector with 8.4%. The Secondary Sector comprises Construction which showed a growth of 10.5%, Electricity, Gas, Water Supply & Other Utility Services which showed a growth of 10.4% and Manufacturing which saw a growth of 7.0% in the Q1 of 2024-25.
The growth rate of Nominal GVA has been projected at 9.8% for Q1 of 2024-25 as compared to an 8.2% growth rate in Q1 of FY 2023-24.
Gross Fixed Capital Formation (GFCF) and Private Final Consumption Expenditure (PFCE) at Constant Prices have witnessed growth rates of 7.4% and 7.5% respectively in Q1 of FY 2024-25.
World Bank released the India Development Update
On 3rd September 2024, the World Bank released its India Development Update (IDU). In its press release stated “The Indian economy continues to grow at a healthy pace despite challenging global conditions”
The World Bank also stated that India needs to diversify its export baskets and leverage global value chains to reach its $1 trillion merchandise exports goal by 2030.
According to the IDU India’s GDP expanded at a fast rate of 8.2% in FY 2023-24, making it the fastest-growing major economy in the world. India’s growth increased due to public infrastructure investment and an upturn in household investments in real estate.
The IDU stated the supply-side factors supported by a resilient manufacturing sector that grew by 9.9% and strong service activity, which offsets the deficit in agriculture. Foreign exchange reserves hit a record high of $670.1 billion in early August due to a decrease in the current account deficit (CAD) and increased foreign portfolio investment. This amount is equivalent to more than cover over 11 months of imports in terms of Fiscal Year (FY) 2023-24.
The World Bank estimates that India’s growth to reach 7% in 2024-25 and remain robust in FY25-26 and FY26-27. It also forecasts, with strong revenue growth and further fiscal consolidation, that the debt-to-GDP ratio to decline from 83.9% in FY23-24 to 82% in FY26=27. The CAD is projected to remain around 1-1.6% of GDP up to FY 26-27.
The report highlights that the National Logistics Policy and Digital initiatives that reduce trade costs have boosted India’s Competitiveness. It also pointed out that the potential trade-related investments may be limited due to the increase in tariff and non-tariff barriers.
The IDU report suggests/ recommends a focused strategy in three different areas for India to achieve the $1 trillion merchandise export target. The three different areas to be focused on are i) lowering trade barriers, ii) reducing trade costs further, and iii) revisiting FTAs & regional integration options.
Source: IUD report, World Bank
Conclusion – My perspective
The World Bank suggests India should follow the three-pronged approach to improve its exports and to achieve the $1 trillion merchandise export target. However, this is not easy to adopt given the global trade environment at present, though these can be adopted slowly as the global trade environment improves over the years.
The GDP growth declined to a four-quarter-low of 6.7% in the first quarter (i.e. April-June, 2024). As this is the election year, there were disruptions in government activity during the first quarter (i.e. Q1 – from April to June 2024). Therefore, the first quarter GDP has slowed to 6.7% from 7.8% in the previous quarter (i.e. Q4 of 2023-24).
The GDP differentiates from GVA by excluding the Government’s subsidy outgo and including indirect tax collections. This means the reduction of subsidy outgo can lift the GDP in comparison to GVA.
According to Government finance data, the significant decline of 14.6% in the subsidy bill contributed to an increase in India’s GDP in 2023-24. Nevertheless, these dynamics reversed, in Q1 of 2024, as subsidy expenses increased by 3.6% year-on-year, dampening GDP growth even as GVA remained resilient.
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