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The new government can have a solid start on the back of 8.2% growth of GDP

One of the challenges faced by the incoming government is to mitigate the impact of climate change

The new government can have a solid start on the back of 8.2% growth of GDP
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There is also a need to diversify services and enhance both domestically and internationally. We need to enhance market related education and skill youth in line with the current expectations which will enable our global capacity centres to take them for serving MNCs

The new government that will take charge at the Centre after the Lok Sabha election results are declare don Tuesday, will open with a bang, in economic parlance. This comes from the good news stemming from the GDP data for the full year 2023-24, which has been released by the National Statistical Office. It is gratifying that real GDP is now estimated to grow by 8.2% for 2023-24 as compared to the seven per cent growth in FY 2022-23. In terms of Gross Value Added, it has grown by 7.2% in 2023-24 from the 6.7% in 2022-23. Real GVD and Real GDP have been estimated to grow by 6.3% and 7.8%, respectively in Q4 of FY 2023-24, which has led to this consistent growth of 8.2% in Q1, 8.1%in Q2, 8.6% in Q3 2023-24.

This augurs well considering the constraints affecting the global economy across segments, including the high level of inflation and fiscal deficit affecting the world growth.

Both RBI and the Union Government deserve praise for the current encouraging results, thanks to the combination of action on the demand and supply fronts. While we further analyse the data, this growth in terms of real GVA in 2023-24 emerges from the better performance of manufacturing at 9.9% this year as against negative growth of -2.2% last year. Similarly the construction sector maintained the momentum this year too at 9.9%; mining and quarrying at 7.1% and electricity, gas, water supply and other utility services at 7.5% have all contributed to the present healthy sign. Meanwhile, financial, real estate and professional services have shown lesser growth this year at 8.4% as compared to 9.1% last year; public administration, defence and other services had growth of 7.8% as against last year’s 8.9%. A major setback has come from trade, hotels, transport, communication and services related to broadcasting, which at 6.4% this financial year is way below last year’s 12%.

The impact of climate change, excessive heat waves, rain shortfall and low water levels in reservoirs had adverse impacts on agriculture, livestock, forestry and fishing which could register a dismal growth of 1.4% this financial year as against 4.7% in the previous financial year.

One of the challenges faced by incoming government is to mitigate the impact of climate change as currently heat waves are sweeping across India, including the normal cooler areas.

If we cannot ensure enough agricultural production, agricultural food and vegetable prices will skyrocket, and impact RBI efforts to control inflation. The much awaited rate cuts will have to further wait.

It may be recalled that government has announced a five-year extension of supply of free food grains to about 81.35 crore beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana.

Primary sectors like agriculture, livestock, forestry and fishing and mining and quarrying registered a meagre growth of 2.1% this year as against 4.4%in 22-23, 4.8% in 21-22, 2.3% in 20-21 and 4.8% in 19-20. This comparison indicates the importance of their influence on the overall growth.

The secondary sector consisting manufacturing, electricity, gas, water supply and other utility services and construction together registered 9.7% growth this year as against 2.1%im 22-23, 12.7% in 21-22, 0.2% in 20-21, negative 1.3% in 19-20. The government efforts to attract global manufacturers under PLI scheme for 15 select sectors should result in the manufacturing sector's contribution to GDP gradually improving to the target of 20 to 25%. There should be further investment on newer technology, investment in R&D, quality products at high-end level and productivity improvement to supply niche products to global market from India, which will improve our foreign trade by exports contributing to foreign exchange. The efforts to focus on products as an import substitute should be continued. However import of capital goods and raw materials which will add to our manufacturing efficiency and export competitiveness should be permitted and tariff policy should be in line with global tariffs as we need to open up further to global investors. The manufacturers will have to invest further keeping in view the new technology like AI and ML.

There is also a need to diversify services and enhance both domestically and internationally. We need to enhance market related education and skill youth in line with the current expectations which will enable our global capacity centres to take them for serving MNCs. The desire for knowledge-based economy, giving further thrust to digital public infrastructure, and digital India should help provide quality professionals to the world, which will enhance their remittance to India.

The high frequency indicators point out that India will continue to perform better in the current year too. The macro-economic fundamentals and a favourable environment can propel the strength as would an enhanced government capex support and the likely new fresh private investment. India, however, has to be vigilant towards global geopolitical situation, extreme weather and uncertainties to growth elsewhere.

Good news is that after a long wait, S&P Ratings changed its ratings of India from ‘stable’ to ‘positive’. This is a positive for us as the rating agency has recognised the judicial fiscal policy of India, stable and enhanced sustained growth and expects solid economic fundamentals to sustain the growth pace for the next two to three years.

There is also a possibility of rating upgrade in the future as S&P says "for a rating upgrade, we are observing the government closely over the next two years to see commitment to fiscal consolidation" India has already given the roadmap to bring down fiscal deficit to 4.5% by 2025/26. It is quite possible that with enhanced receipts and lower borrowings and quality of spending and with further economic reforms this could be achieved at a faster pace.

Another positive surprise has come from RBI, which has approved its highest ever transfer of Rs. 2.11 lakh crore as surplus to the Centre for the financial year 2023-24. The government had budgeted Rs. 1.02 trillion in the Interim budget for 2024-25 .This will definitely help the government to further reduce the fiscal deficit and comes as positive news for the market.

(The author is former Chairman & Managing Director of Indian Overseas Bank)


Dr M Narendra
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