Number theory: Understanding the state of the Indian economy

The Union government released important economic data including GDP numbers, fiscal figures, and core sector index. What do these numbers tell us?

The Union government released important economic data on May 31, including GDP numbers for the quarter ending March 2023, provisional fiscal numbers for the central government for 2022-23, and the index of eight core sector industries for April 2023. What do these numbers tell us about the state of the economy? Here are four charts which provide a summary of the key takeaways.

Customers buy vegetables at a night market in Hyderabad. (AFP)

There seems to be a consumption-investment divergence in GDP data

The 6.1% headline GDP growth print for the quarter ending March 2023 has surpassed analyst and the government’s estimates by a long distance. However, an expenditure-side analysis of the numbers shows that two key drivers of growth, consumption and investment, seem to be headed in different directions. While private final consumption expenditure (PFCE) growth slowed down significantly over the course of 2022-23, gross fixed capital formation (GFCF) continues to show robust momentum. Part of the GFCF momentum is on account of a government’s push towards capex as its total capital spending increased by 24% between 2021-22 and 2022-23. While GDP numbers do not give a private-public classification of capex numbers, a look at a capacity utilisation survey conducted by RBI shows that utilisation levels have been rising, which would necessitate at least some pick up in private investment activity. But urban consumer sentiment, as captured in the RBI’s Consumer Confidence Surveys continues to be in the red.

This is the only question worth asking in the run-up to the next meeting of the RBI’s Monetary Policy Committee (MPC) which will begin on June 6. MPC has administered a cumulative hike of 2.5 percentage points between May 2022 and February 2023. The MPC decision to keep rates unchanged in its April meeting was vindicated when Consumer Price Index (CPI) growth in April came at 4.7%, the lowest in 18 months. To be sure, RBI’s rate hikes have led to a significant increase in lending rates across the spectrum and this is bound to generate headwinds for growth. It remains to be seen whether a better-than-expected GDP growth number will turn MPC’s sentiment in the hawkish direction. To be sure, as things stand, most analysts do not expect MPC to cut rates in its June meeting.