How resurge in demand and increased capex resulted strong economic growth in April-June quarter

The national statistical office of the Ministry of Statistics and Programme implementation ( MoSPI ) has come out with gross domestic product (GDP) numbers for the first quarter of the current financial year. Data reveals that the economy has expanded by 7.8 per cent during April to June on the back of increasing consumption, robust performance by services, increased capital expenditure and a favourable base. This growth print is in line with market expectations and highest since the second quarter of the last financial year and lower than 13.1 per cent in the first quarter of the financial year 2022-23. According to the quarterly estimate of GVA at basic price, the service sector number was stronger than other sectors. At the broad level, while the service sector grew by 10.3 per cent, agriculture grew by 3.5 per cent driven by a healthy rabi harvest and construction by 7.9 per cent. The growth of manufacturing has been only 4.7 per cent, even the growth in Q1FY23 was 6.1 per cent. A decline in manufacturing growth might be because of negative growth of 7.7 per cent in exports. India’s exports declined by Rs 0.71 lakh crore to Rs 8.44 lakh crore in Q1FY24 from Rs 9.15 lakh crore in Q1FY23. It may be a signal of the emergence of global economic slowdown which will adversely impact the growth performance of India. On the other hand, the quarterly estimate of expenditure components of GDP at constant (2011-12) prices is estimated at Rs 40.37 lakh crore for Q1FY24 from Rs 37.44 lakh crore a year ago. It shows a growth of 7.8 per cent as against 13.1 per cent during the same period in the last year. Subsequently, nominal GDP marked a growth of 8.0 per cent and estimated to reach at Rs 70.67 lakh crore from Rs 65.42 lakh crore in FY23. Inflation that is based on the implicit price deflator was only 0.20 per cent. While during the same period retail inflation was 4.6 per cent and wholesale price inflation was 2.9 per cent. The first component of GDP is private consumption (C) which is represented by private final consumption expenditure (PFCE). Data stipulate a resurgence in consumer demand in the first quarter. The private consumption grew 6.0 per cent to Rs 23.1 lakh crore as compared to Rs 21.8 lakh crore during the same period in the last fiscal and Rs 18.22 lakh crore in FY22. The growth in consumption is near to its longer-term average. The average consumption growth during Q1FY20 to Q1FY24 has been 3.6 per cent. Notably, private consumption, which is the largest component and secured 57.3 per cent of GDP, is still lagging the overall GDP number. It evinces that a segment of consumers has not fully recuperated from the dent of the global pandemic. Rural demand is still a matter of concern as urban demand is higher than rural demand. The second driver is investment made by the government (G). It is known as the government final consumption expenditure (GFCE). The capital expenditure (capex) is necessary to sustain the momentum of the growth. At a time when private investment numbers were not increasing due to poor demand, the government had increased capex, especially in infrastructure. In the April-June quarter, the capex of the government increased by 59 per cent from Rs 1.75 lakh crore in Q1FY23 to Rs 2.78 lakh crore in Q1FY24. However, it will be difficult for the government to maintain the same tempo in the remaining quarters. As there has been a slight increase in the gross tax collections and a decline in net tax collections. During the June quarter of the current financial year, while the gross tax collection has increased by 3.3 per cent to Rs 6.71 lakh crore as against Rs 6.51 lakh crore a year ago, net tax collection decreased by 14.23 per cent to Rs 4.34 lakh crore as against Rs 5.06 lakh crore a year ago. Same is the situation with non-debt capital receipt. The amount realised Rs 0.04 lakh crore from disinvestment in Q1FY24 is 84 per cent lesser than the amount realised of Rs 0.25 lakh crore in Q1FY23. The third component is private investment (I). It is represented by gross fixed capital formation (GFCF). The flow of private investment is very necessary for the soundness of the economy. The continuously increasing capex of the government, followed by pickup in demand, is crowding in private investments. Data shows that private investment has increased. GFCF grew 8.0 per cent to Rs 14 lakh crore in the first quarter of FY24 from Rs 12.98 lakh crore a year earlier. The vigorous domestic demand, plunge in trade deficit and increased service activity likely aided growth in the first quarter of current financial year. The low base effect and deflator issue has also helped to some magnification in GDP growth. Despite the GDP number being slightly lower than the RBI estimates of 8 per cent, the government is confident that GDP will grow by 6.5 per cent in the current financial year. However, there is a possibility that the pace of growth will slow down in the future due to high inflation, elevated interest rates, poor monsoon and global economic slowdown. Even after this, it seems that India will remain one of the fastest growing economies in the world. The writer is an Associate Professor at ITS Ghaziabad, an author and a columnist. He writes regularly on the issues of political economy and economic policy. He tweets @meetdrvinay . Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost_’s views._ Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook ,  Twitter  and  Instagram .