Deciphering India's GDP: Navigating Divergent Data For Taxpayers
The rate of growth of India's gross domestic product varies across different agencies. How can the average taxpayer decode the implications of varying data points?
Amidst the prevailing narrative of India's economic ascent, a contentious debate brews over its gross domestic product (GDP) figures, questioning the veracity of its growth trajectory.
The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI), paints a rosy picture, estimating India's real GDP for 2023-24 to reach Rs 172.90 lakh crore, signalling a cause for jubilation with a 7.6 per cent growth rate. However, this optimism is swiftly rebutted by the International Monetary Fund (IMF), which foresees a more conservative 6.7 per cent growth for FY24 and a further dip to 6.5 per cent in FY25. Such projections, contrary to domestic expectations, find resonance with venerated institutions like CRISIL Ratings, whose forecast of 6.8 per cent GDP growth for FY25 echoes the IMF's cautionary stance.
The Reserve Bank of India (RBI), in its first monetary policy review for FY25, has projected the GDP to grow at 7 per cent. So, the IMF projects India's GDP to grow at 90 basis points (bps) lower than the estimates of the Indian government for FY24 and 50 bps lower than what RBI estimates for FY25. “With rural demand catching up, consumption is expected to support economic growth in 2024-25. Urban consumption stayed buoyant as evident from various indicators. The resilience in cement production, together with strong growth in steel consumption and production and import of capital goods augur well for the investment cycle to gain further traction,” RBI Governor Shaktikanta Das said.
During the first quarter of 2024-25, the RBI anticipates a growth rate of 7.1 per cent, a slight adjustment from the previous estimate of 7.2 per cent made in February. Earlier, the RBI had estimated a growth rate of 6.7 per cent for Q1 FY25.
The divergence in growth projections underscores the significance of global economic indicators in shaping India's economic narrative. The IMF's pivotal role is accentuated, not merely as a prognosticator of economic trends but as a bastion of financial stability and policy guidance during tumultuous times.
The IMF projects India's GDP to grow at 90 bps lower than the estimates of the Indian government for FY24 and 50 bps lower than what RBI estimates for FY25. But IMF projections are also supported by other reputed ratings agencies. Take, for example, CRISIL Ratings. It also projects India's GDP growth for FY25 at 6.8 per cent, 20 bps lower than RBI's projections. But the Asian Development Bank (ADB) just upgraded India’s GDP growth forecast for FY25 to 7 per cent from 6.7 per cent made earlier, citing robust public and private investments and strong services sector.
But from within IMF different growth projections came to the fore recently. On March 28. Krishnamurthy Subramanian, Executive Director at IMF said that the Indian economy could grow at 8 per cent till 2047, if the country redoubles the good policies that it has implemented over the last 10 years and accelerate reforms. Taking a different stand, Julie Kozack, IMF spokesperson, clarified thereafter: "The views conveyed by Subramanian were in his role as India's representative at the IMF." Kozack was asked about IMF's stand on India's growth projection and why was it different from Subramanian's numbers. The IMF spokesperson said, "We do have an Executive Board. That Executive Board is made up of executive directors who are representatives of countries or groups of countries, and they make up the Executive Board of the IMF. And that's distinct, of course, from the work of the IMF staff."
Be that as it may, to put the India growth numbers in perspective, it is very clear that the Indian economy has grown at a healthier pace in the past decade. For example, as per the data from NSO and MoSPI, India's real GDP or GDP at constant (2011-12) prices in the year 2013-14 stood at Rs 99.21 lakh crore. In FY24, it is estimated at Rs 172.90 lakh crore. Which means in value terms the Indian economy added Rs 73.69 lakh crore in the last 10 years. Is that a good data point reflecting all-round growth of the economy? Perhaps not. But it does reflect growth amidst global challenges including the slowdown after the global pandemic.
Pressing Concerns
Rajani Sinha, Chief Economist, CARE Ratings, directs the attention to more immediate concerns, particularly for the RBI. "The main concern of the central bank is the persistent high food inflation and the adverse impact of that on household inflationary expectations," says Sinha. For FY25 outlook, Sinha says the expectations of normal monsoon bodes well for food inflation. But she warns that the continuation of geopolitical rifts and supply-side risks of the same on commodity prices requires monitoring. "Increased climate risks in the domestic and global economy have emerged as another big risks for food inflation in the last few years," says Sinha.
But circling back to the GDP growth data, how do economists explain the NSO data estimating India's GDP growth for FY24 at 7.6 per cent beating the estimates of the World Bank and IMF projections? According to D.K. Srivastava, Chief Policy Advisor, EY India, most of the GDP growth has come about through robust non-agricultural growth on the supply side and substantial investment growth on the demand side. In terms of quarterly growth rates, the average GDP growth for the first three quarters of FY24 was 8.2 per cent implying the fourth quarter growth estimate at only 5.9 per cent.
But economists are concerned on the demand side slowdown in consumption expenditure which shows a growth rate of only 3 per cent for both private and government final consumption expenditure. On the output side, agricultural growth is also limited only to 0.7 per cent in FY24. But the non-agricultural sectors show robust growth. In particular, construction has grown 10.7 per cent followed by manufacturing at 8.5 per cent and financial, real estate and professional services sector at 8.2 per cent. This growth has been achieved despite a negative contribution by net exports to real GDP growth at (-)2.3 percentage points.
The main driver for this growth, therefore, has been investment demand (gross fixed capital formation) which has shown a growth of 10.2 per cent in FY24, economists say. This has particularly been driven by government capital expenditure growth directed towards building infrastructure, as per Srivastava.
"An unanticipated feature of the FY24 annual growth relates to the difference between the GDP growth of 7.6 per cent vis-à-vis GVA growth of only 6.9 per cent which is accounted for by growth in net indirect taxes (indirect taxes net of subsidies). GoI’s indirect tax growth remained low at 4.5 per cent during April-January FY24. It implies, therefore, that subsidies were reduced substantially leading to a significant excess of GDP growth over GVA growth of 0.7 percentage points," Srivastava points out.
Credit Outlook for India Inc.
According to the latest assessment by CRISIL Ratings for fiscal 2025, the credit quality outlook will remain positive. Upgrades will continue to outpace downgrades, driven by domestic demand, low corporate debt levels and tailwinds from the ongoing infrastructure build-out, says Gurpreet Chhatwal, Managing Director, CRISIL Ratings. For the fiscal year gone by (FY24), the CRISIL Ratings credit ratio (rating upgrades to downgrades) moderated in the second half of fiscal 2024 but remained elevated. In all, there were 409 upgrades and 228 downgrades in FY24. “The three key pillars of India Inc.’s credit quality — deleveraged balance sheets, sustained domestic demand and government-led capex — kept the upgrade rate elevated in the second half of fiscal 2024. That’s above the 10-year average for the sixth consecutive half year," explains Chhatwal.
So what is in store for India Inc. in FY25? As per Chhatwal, for fiscal 2025, as many as 21 of 26 corporate sectors have strong-to-favourable credit quality outlook, marked by robust balance sheets and healthy operating cash flows — expected to be as much, or higher, than in fiscal 2024. These include auto component manufacturers, hospitality and education sector companies where the credit quality is supported by healthy domestic demand. It also includes sectors benefiting from the government’s infrastructure spending, such as construction companies, steel, cement and capital goods manufacturers, Chhatwal adds.
For banks, credit growth is expected to remain healthy in fiscal 2025, but grow a tad slower at ~14 per cent, compared with ~16 per cent estimated for fiscal 2024, given the likely moderation in economic growth.
