The GDP growth figure stands as one of the most crucial indicators of economic performance, despite the inherent limitations of the concept. This revised figure is likely to remain stable even in the May release after the fiscal year’s conclusion and can be regarded as the final assessment. How should we interpret this growth rate?
Because it offers an objective measure of an economy’s progress , facilitating comparisons with other nations and providing insight into its overall performance, this is primarily. The National Statistical Office (NSO) recently announced in its second advance estimate that GDP growth for FY24 would reach 7.6%, surpassing the previously forecasted 7.3% announced last month .
With the revised FY24 growth now at 7.6%, there may be pressure on the FY25 forecast due to the base effect. The Reserve Bank of India (RBI) has projected a growth rate of 7% for FY25, based on the assumption of 7.3% growth in FY24. Nevertheless, as elaborated above, the anticipated uptick in consumption and investment should support slightly higher growth, potentially exceeding 7.5%, provided the external environment, including stable monsoons, prevails. (The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’)
Another perspective on GDP growth lies on the expenditure side, where consumption and investment are the dominant components. However, with inflation expected to ease in FY25, a rebound in consumption growth is anticipated. The momentum is expected to continue well into FY25, potentially driving sustained growth in the coming years.
This discrepancy indicates that real consumption was impacted by high inflation, which hovered around 5-6% for much of the year, particularly affecting rural demand due to weaker agricultural performance. Consumption, which accounts for approximately 60% of GDP, presents a mixed picture. down from 14.2% in FY23, real growth was a mere 3% While nominal consumption growth stood at 8%. Investment emerges as a bright spot on the expenditure side, with nominal growth reaching 11.1% and real growth at 11.9%. Moreover, the gross fixed capital formation rate climbed to 31.3% in FY24, a significant achievement given the prolonged period during which the investment ratio remained below 30%.
