Growth Engine Revs Up

With India’s GDP in the July-September 2023 quarter beating all estimates to record growth of 7.6 per cent, is India’s economic engine now firing on all cylinders? 

Other data points are positive as well. Goods and Services Tax (GST) collections in November 2023 were 15 per cent up year-on-year at Rs 1.68 lakh crore despite fewer working days in the month due to Diwali. The S&P Global India manufacturing purchasing managers’ index (PMI), a bellwether for economic activity, rose from 55.5 for October to 56 for November. 

Following the surge in the BSE Sensex, the market cap of stocks listed on the BSE rose above $4 trillion for the first time. Only four countries (the United States, China, Japan and Hong Kong) have higher market caps. The BJP’s victory in three assembly elections – Rajasthan, Madhya Pradesh and Chhattisgarh – has added momentum to Indian stocks ahead of the 2024 Lok Sabha poll.

With GDP growth for the first half of 2023-24 averaging 7.7 per cent, global and Indian financial institutions have upgraded their forecasts for India’s full-year GDP growth. State Bank of India now projects India will grow at seven per cent this fiscal. Morgan Stanley projects 6.9 per cent growth in 2023-24. Barclays, Citigroup and Bank of Baroda forecast full-year growth at 6.7 per cent. 

The Reserve Bank of India (RBI) has cautiously stuck to its prediction of 6.5 per cent growth in 2023-24. But for that to happen, growth in the second half of this fiscal – October 2023 to March 2024 – would need to fall to 5.3 per cent. That is unlikely to happen, even assuming the most pessimistic scenario of a spike in crude oil prices to $100 a barrel and further trade disruption due to the Russia-Ukraine war which, as sub-zero winter temperatures set in, is likely to remain stalemated. 

What are the factors driving sustained Indian economic activity even as other large global economies slow down? Manufacturing, construction, electricity, mining, gas, water and other utilities are boosting growth. Services continue their upward trajectory. As AI-focused solutions gain traction in the West, Indian IT companies expect a better second half this fiscal after a tepid first half. Third quarter results from TCS, Infosys and HCL Tech, India’s three largest IT services companies, will be announced in the second week of January 2024. They will be closely watched. 

*Banking on growth 
The banking, financial services and insurance (BFSI) sector has been an outstanding performer. It accounted for nearly 35 per cent of total corporate profits in the July-September 2023 quarter. A key factor is the years-long clean-up of banks’ non-performing assets (NPAs).  

As Roshan Kishore, data editor of Hindustan Times, wrote: “At the peak of the bad loan crisis in 2017-18, gross NPAs accounted for 11.2 per cent of total loans and advances of all Scheduled Commercial Banks (SCBs). This number was 14.6 per cent for Public Sector Banks (PSBs). This has fallen consistently since then and was 3.9 per cent and 5.2 per cent for SCBs and PSBs according to RBI’s June 2023 Financial Stability Report. 

“An analysis of RBI data on movement on NPAs for SCBs shows that the biggest reason for the fall in NPAs in absolute terms has been a decline in creation of new NPAs. This becomes clear if one looks at addition of new NPAs as the share of opening balance of NPAs in that year. Between 2009-10 and 2015-16 the addition to NPAs in each year was higher than the opening balance in three years (2009-10, 2011-12 and 2015-16), at least 90 per cent of the opening balance in 2012-13 and 2013-14, and 83.9 per cent and 79.2 per cent in 2010-11 and 2014-15. This number has fallen almost consistently in the period after that and it was around one-third in 2020-21 and 2021-22.” 

The reason for this fall in NPAs? Chronic bad loans incurred during the infamous “phone-banking” era of 2004-14 were written off. The government had to recapitalise public sector banks to ensure they met statutory capital adequacy ratios.  Since most of the decadal phone-banking liabilities were borne by PSBs, private banks like ICICI Bank and HDFC Bank escaped largely unscathed. 

It’s important for the Indian economy’s sustainable growth that banks have the liquidity to spur credit offtake by the corporate sector. So far investment, especially in infrastructure, has been boosted by government-financed capex. The private sector had long complained of credit availability in banks. That no longer holds good. If the private sector now joins the government to invest in manufacturing and infrastructure, India’s economy can once again beat economists’ forecasts of muted growth in 2024-25. 

Other data metrics meanwhile are improving as well. Inflation has moderated. The wholesale price index (WPI) has been negative for months. The Consumer Price Index (CPI) has dipped to 4.87 per cent, well within the RBI’s comfort range of 2-6 per cent. 

*Turbocharged
India continues to be the world’s fastest-growing large economy. China’s economic growth is unlikely to breach four per cent this fiscal while growth in most of Europe is set to stagnate on either side of one per cent. 

The United States is among the few Western economies displaying resilience. Its full-year GDP growth could spurt to three per cent. The US, unlike Europe, is an oil exporter and pumps as much crude, 10 million barrels per day, as Saudi Arabia. Its military-industrial complex (MIC) is busy supplying weapons to Ukraine. Protected on both sides by the Atlantic and Pacific Oceans, the US does not fear attacks on its energy infrastructure as Europe does. Around 1.5 million legal immigrants enter the US every year. They add talent, energy and enterprise to the US economy.

Like heterogeneous India, diversity is the secret sauce underlying America’s economy.  

The writer is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa 2014). He is founder of Sterling Newspapers Pvt Ltd., which was acquired by the Indian Express Group