While India's GDP growth strong, private consumption remains muted: S&P Global Market Intelligence

S&P Global Market Intelligence asserts that weak private consumption in India remains the largest concern, with rural demand in particular still "straggling to catch up", at a time when the country's overall growth remains strong. For the second consecutive quarter, India's real GDP growth exceeded most forecasts, bringing the full financial year 2023-24 growth to 8.2 per cent. With this, India maintains its status of the world's fastest-growing large economy.

According to the latest government data, India's real GDP growth stood at 7.8 per cent year-on-year during the January-March 2024 quarter--the last quarter of 2023-24--slowing from the revised 8.6 per cent expansion in the October-December quarter, but still above most analysts' expectations and government's own forecast of 5.9 per cent. S&P Global Market Intelligence, a financial information and analytics firm, said India's strong GDP data added market optimism shortly ahead of the general election results to be announced on June 4.

"While positive, the headline figure does not remove concerns above the underlying strength of the economy and continues to point to uneven recovery," it noted, arguing private consumption in the country is weak. "Weak private consumption remains the largest concern, with rural demand in particular still straggling to catch up to India's strong overall growth. Latest high frequency data does signal that the rural demand is starting to pick up. An increase in two-wheeler sales and demand for diesel, as well as lower demand for the rural job guarantee scheme are all positive signs that the rural consumption may turn around in the coming quarters," it asserted.

It also cautioned on the cloudy food inflation outlook. Food inflation in India has been consistently high. A moderation in inflation is observed since the start of 2024 but food prices remain persistently high. Retail inflation clocked 4.83 per cent in April 2024, the lowest in the past 11 months. Retail inflation in India, though, is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario.

Food price inflation was at 8.70 per cent in April, way above the headline figure. "Further easing of food prices strongly hinges on the upcoming monsoon season, which so far is projected to be normal but remains a significant risk," said S&P Global Market Intelligence.

Overall, S&P Global Market Intelligence projects private consumption to improve gradually to grow 6.9 per cent in the current financial year year 2024-25. Private investment should also continue to recover, supported by stronger capacity utilization and overall demand. S&P Global Market Intelligence expects India's real GDP growth to slow to 6.7 per cent in 2024-25.

India's GDP grew at a massive 8.2 per cent during the financial year 2023-24, and the country continued to remain the fastest-growing major economy. India's economy grew 7.2 per cent in 2022-23 and 8.7 per cent in 2021-22, respectively. The size of India's GDP is currently ranked 5th, after the US, China, Germany, and Japan. It overtook the UK in 2022.

Just a decade ago, Indian GDP was the eleventh largest in the world. Currently, India's GDP is estimated to be around USD 3.7 trillion. Citing various macroeconomic parameters that are doing pretty well, India's G20 Sherpa and former CEO of Niti Aayog Amitabh Kant projected that the country is all set to overtake Japan as the 4th largest economy in the world by 2025.

Separately, S&P Global Ratings last week revised its rating outlook on India to positive from stable, and added that it expects continuity in economic reforms and fiscal policies regardless of the Lok Sabha election outcome. It attributed robust economic growth, pronounced improvement in the quality of government spending, and political commitment to fiscal consolidation to the rating upgrade.