Economy
Shining GDP overshadows slower GVA: Decoding growth numbers in 7 charts
Summary
While the headline GDP figures are impressive, the underlying growth in gross value added (GVA) paints a slightly different story.Amid the ongoing high-stakes Lok Sabha elections, the Indian economy has put up a stellar show for the fiscal year 2024 (FY24), the last year of the Narendra Modi government’s second term. Beating street expectations once again, the GDP grew at 8.2% in FY24 compared to the median estimate of 7.9% in a Mint poll.
The impressive growth in FY24 came on the back of higher-than-expected growth in the fourth quarter, which came in at 7.8% against expectations of 7%. Although, the growth was slowest in four quarters.
While the headline GDP figures are impressive, the underlying growth in gross value added (GVA) paints a slightly different story. GVA, which reflects the value addition within the domestic economy, grew at a slower pace of 7.2% for the entire FY24 and just 6.3% in the final quarter. GDP is calculated by adding net tax (taxes minus subsidies) to GVA.
“The divergence in GDP and GVA growth seen in Oct-Dec has continued, with net taxes growing by 22% in Jan-Mar. This has propelled the GDP growth for Jan-Mar," said Rajani Sinha, chief economist at CareEdge Ratings.
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According to the government finances data released today, the Centre’s expenditure on subsidies declined 23.8% year-on-year, which could have pushed up net taxes and, as a result, GDP.
However, this trend is unlikely to continue. “Such a high growth of net indirect taxes unlikely to sustain in FY25. We expect GDP and GVA growth to print closer to each other, especially in terms of the annual numbers," saidAditi Nayar, chief economist at ICRA.
Another factor that may have helped boost the real GDP figure is low WPI inflation, which was -0.7% in FY24 compared to 9.4% the previous year. Since real GDP is adjusted for inflation from nominal GDP using GDP deflator which incorporates both WPI and CPI inflation but the weightage given to WPI is higher at 65-70%.
“An appreciably lower GDP deflator has artificially pushed up the real GDP growth outturn for FY24, in our view," Deutsche Bank said in a note 22 May.
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Sector-wise, a slowdown in economic activity from the previous quarter is evident, with agriculture barely showing any growth, thanks to below-normal monsoon and erratic weather. Both industry and services sectors have witnessed a slowdown in the fourth quarter.
From the expenditure side, private final consumption expenditure, a proxy for private consumption, has remained weak, which could be a reason for worry. On the contrary, gross fixed capital formation, a proxy for investment, has shown a decent rise albeit slowing down from the previous quarters. Government finances data shows that the Centre managed to achieve 94.9% of its Budgeted capex in FY24, which helped in supporting the economy.
While FY24 ended on a strong footing, the current financial year may experience moderation in growth as evident from the fourth quarter data.
“Signs of a mild slowdown were seen in the fourth quarter…We expect growth to moderate to 6.8% in FY25, with high interest rates and lower fiscal impulse tempering demand in non-agricultural sectors," Crisil said.
