A first quarter growth in gross domestic product, coming in at 7.8 per cent, can only be cause for muted cheer. It should not be forgotten that the economy contracted by 23.9 per cent three years ago (Q1FY21). An elevated GDP figure for Q1FY24 represents the final phase of that low base effect as the economy chugs back to the old trend line; even so, it comes lower than the Reserve Bank of India’s 8 per cent projection. What remains to be seen is whether the RBI’s projection of 6.5 per cent, 6.6 per cent and 5.7 per cent, respectively, for the remaining three quarters of FY24 comes true. There are clouds of concern, even though services growth (over 10 per cent) has shown resilience.

Wednesday’s data release offers some takeaways. First, the growth is not exactly broadbased. It has been driven from the supply side by trade, hotels, communications, transport, financial services and government expenditure, rather than agriculture and manufacturing. There are indications that organised services have developed an inflation-defying momentum, which is borne out by the hotel occupancy rates, rising retail credit and growth in air travel. Second, the 3.5 per cent agriculture growth in Q1, despite a low base of 2.4 per cent growth in the corresponding period in FY23, shows that, like last year, adverse weather impacted the rabi crop. Agriculture may not be able to sustain its recent 4 per cent quarterly growth rates if the monsoon deficit continues. Third, manufacturing growth at 4.7 per cent in real terms (and curiously enough, at 1.9 per cent in nominal terms) suggests that it remains weighed down by complex factors, despite policy initiatives. According to analysts, this is also borne out by the poor sales growth in non-BFSI companies. Fourth, construction growth at 7.9 per cent probably points to concentration of capex in this sector, rather than across manufacturing. Organised services are likely to drive growth from the supply side, as the demand-effects of inflation may hold back other sectors.

Finally, a nominal Q1 GDP growth of 8 per cent, nearly the same as the real growth rate, seems a puzzle at a time of high retail inflation, even if one takes into account that WPI has been in the negative. If the ‘deflator’ is indeed so low, it suggests that manufacturing has suffered adverse terms of trade. However, the question of data integrity cannot be brushed aside.

On the demand side, private consumption expenditure growth at 6 per cent (constant prices) is not too bad, while exports have fallen over 8 per cent. The effect of inflation on consumption would depend on whether manufacturing and construction create jobs and incomes to offset price rise. Q1 investment growth has held up at 7 per cent, but it is unlikely that the private sector will do the heavylifting now with elections in the air. With the world economy looking fickle, growth in the short term would depend on the Rain God. In the medium term, it is a question of keeping the existing policy momentum going.

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