The Reserve Bank of India (RBI) has projected a real GDP growth at 6.5 per cent for the year with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent.

As the anxiously awaited quarterly GDP estimates for April-June of 2023-24 get absorbed this Thursday (August 31) evening, the mood is already upbeat. Most estimates suggest robust growth numbers. The Reserve Bank of India (RBI) has already projected a real GDP growth at 6.5 per cent for the year with Q1 at 8.0 per cent; Q2 at 6.5 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent.

But then, industry experts and economists feel India even at the RBI’s estimate of 6.5 per cent will still remain the fastest growing big economy. Therefore, what matters is composition of the GDP numbers and a focus on the long-term growth drivers and especially in sectors that are employment generating. While numbers matter and an 8 per cent growth in a quarter would certainly be welcomed, factors that are driving the long-term growth will increasingly matter most. This, especially for a country that saw urban India lose 10 million jobs, rise in agricultural employment and one that is still coping with a slow pick up in manufacturing apart from an erratic monsoon.

To many a mirror to consumer demand is the FMCG (Fast Moving Consumer Goods) sector. Seen from the FMCG perspective, C K Ranganathan, founder chairman and managing director of CavinKare, has this to say: “There are factors at play today that are putting pressure on the FMCG volumes. This is because at the end of the day the consumer is under pressure with limited income. If he or she is not to cut back on consumption then either the inflationary pressures need to come down or the per capita incomes have to rise. It is only then that there will be an upswing in rural demand.”

Or consider this – analysts at Motilal Oswal in their Q1FY24 result update on Marico point out that sales and volumes disappointed with consolidated net sales declining 3.2 per cent year on year (YoY) and the domestic volumes increasing by just 3 per cent YoY.

Another analyst looking at the FMCG but not wanting to be named, sees no immediate triggers to volume expansions and finds discounts remaining at similar levels and commodity prices almost stable. He points out, “one could hinge hopes on the festive season’s sales but then it is more likely to happen in discretionary spending and not much on soaps, detergents or toothpaste.”

We turned to Naushad Forbes, the author of a rather lucid and insightful book titled: “The Struggle And The Promise” – Restoring India’s Potential. He sees reasons for hope and shares the optimism about an 8 per cent growth in the first quarter. He attributes it largely to three factors: Higher government capital expenditure, a pick up in the services sector and within this especially retail, travel and tourism and to the base effect. The co-chairman at Forbes Marshall, who is also the former president of the Confederation of Indian Industry (CII), says “the key question is what our long-term growth is going to be.” Going by the RBI estimates, he sees the year begin with an 8 per cent GDP growth in the first quarter followed by around 6 per cent in the remaining three quarters if one were to get to the 6.5 per cent GDP projected for the year as a whole by the RBI. This, he feels, is quite likely as the factor of base effect will be missing in the subsequent quarters.

If the growth momentum is to be maintained in the subsequent quarters then it is crucial that there is a full recovery in the employment generation in the urban areas. “We lost 10 million jobs here and if the earlier growth trend of 5 million jobs added each year is to return then we need to add over 20 million jobs, which in turn will trigger a growth in FMCG volumes,” he says. If the FMCG volumes are ahead of the GDP growth, he explains, “then it will start reflecting in the manufacturing volumes as well. This is because there will be a need to create more capacities.”

On manufacturing, which is an important driver for employment, he says the manufacturing growth overall is still at around 4 to 4.5 per cent and therefore not quite the engine taking the GDP ahead. “We are better than the average over the last 10 years but to be a growth engine for the GDP, manufacturing growth has to be higher than the GDP growth.”

Forbes however cautions that while data seems to not yet suggest a pick up in the investment rate, the capex cycle has turned and says, “I can say that from our own experience but it does not seem to be showing in the private sector investment data.”

A silver lining in the current growth numbers and perhaps in what one will notice in the first quarter GDP numbers is the recovery in services and that is in retail, travel and tourism, which, he says, “is employment generating and is something that we have missed in the last three to four years or since the pandemic which led to disruptions in jobs and in livelihoods.”

https://www.financialexpress.com/policy/economy-indias-gdp-why-the-growth-composition-now-holds-the-key-for-the-fastest-growing-big-economy-3228867/