The US has registered a growth rate of 5.2 per cent and China’s 4.9 per cent has beaten the forecasts for the July-September quarter of 2023 — but India witnessed an even higher Q2 growth rate of 7.6 per cent, racing beyond RBI’s 6.5 per cent forecast by a staggering 110 basis points. Here are some salient features:

External sector: The IMF in its World Economic Outlook of July 2023 stated that world trade growth is expected to decline from 5.2 per cent in 2022 to 2 per cent in 2023, before rising to 3.7 per cent in 2024, well below the 2000-19 average of 4.9 per cent.

This impact was witnessed in India’s foreign trade as merchandise exports and imports, services imports have reduced in Q2 FY24 compared to a year ago. Surprisingly, services exports have increased.

Trade balance, the gauge for net exports, has decreased from (-) ₹3.5-lakh crore in Q2 FY23 to (-) ₹1.75-lakh crore in Q2 FY24. This has been aided by higher trade surplus in servicesThe combined effect of higher trade surplus in services and lower merchandise trade deficit has led to reduced pull of net exports on the GDP in the second quarter.

Capital formation: To address the massive infrastructure deficit in the country, the Modi government stepped up capital expenditure as a percentage of total expenditure since FY20. For FY24, it was raised to ₹10-lakh crore from ₹7.5-lakh crore in FY23 on the back of fiscal consolidation. The improvement in quality of expenditure is not only non-inflationary but has higher multiplier effect and shields the economy from global headwinds. Capex from the Central Government increased by 26.4 per cent from year ago.

Labour market: The EPFO data for H1 FY24 reflects an increasing trend in employment catching up with increasing economic activity. As much as 4.77 million members were added in Q2 FY23 whereas that increased to 4.79 million in Q2 FY24. Labour force participation rate in urban areas increased from 47.9 per cent in Q2 FY23 to 49.3 per cent in Q2 FY24. Worker population ratio, too, has increased from 44.5 per cent to 46 per cent. Strikingly, unemployment rate fell from 7.2 per cent to 6.6 per cent amidst the increasing labour force participation rate and worker population ratio, indicating the abundance of income earning opportunities.

Inflation: Although crude oil prices exhibited flipping behaviour in Q2 FY24 vis-a-vis a year ago, it had reduced impact on consumer prices. The inflation rate in fuel and light grouping of consumer price index decreased from 3.67 per cent to -0.11 per cent during the second quarter FY24. Due to the broad based decline in price pressures, CPI too reduced from 7.44 per cent to a tad above 5 per cent.

Consumption: Due to the improved labour market conditions, easing inflation and rural consumer optimism as per the CVoters’ latest Quarterly Consumer Optimism Report, GST collections — consumption tax — have increased by 10.5 per cent. The growth rates in power consumption, petroleum consumption and domestic auto sales also point to increased consumption activity. This was captured in the private final consumption expenditure, which grew by 3.13 per cent in Q2 FY24.

Industrial growth as per the Index of Industrial Production averaged 6.3 per cent in July-September 2023, up from 5.1 per cent in the previous quarter and 1.5 per cent in July-September 2022. As a result, manufacturing sector GVA grew by 13.9 per cent in Q2 FY24 compared with 3.8 per cent contraction a year ago. Due to deficient rainfall, the agriculture, livestock, forestry and fishing industry grew by 1.2 per cent in Q2 FY24, down from 2.5 per cent in Q2 FY23. Services sector grew by 6.77 per cent in Q2 FY24 over Q2 FY23, confirming the strong PMI services numbers for July-September 2023.

The government is on guard and is monitoring global headwinds.

The writer is an economist and columnist, and member of BJP