India’s Growth Surprise
March 2, 2024


  • India's economic trajectory has consistently defied expectations, with the National Statistical Office's second advance estimate revealing a robust 7.6 per cent GDP growth, surpassing earlier projections.
  • To understand the India’s growth surprise, it is crucial to assess the various facets of India's economic landscape.
  • Moreover, it is equally important to have an assessment of the factors contributing to the surprising growth, consumption patterns, savings dynamics, and investment trends.

Components Contributing to India’s Growth Surprise

  • Strengthening Economic Momentum
    • The initial estimate, released on January 5, pegged GDP growth at 7.3 per cent, setting a positive tone for the fiscal year.
    • However, the subsequent second advance estimate, incorporating additional data for the third quarter, surpassed these expectations.
    • This implies a strengthening economic momentum in the third quarter, further propelled by the gains from rising net taxes, which emerged as a notable contributor to the overall growth trajectory.
  • Rising Net Taxes and Subsidies
    • A crucial aspect of this growth narrative lies in the comparison between gross value added (GVA) and GDP growth.
    • While GDP growth stands at an impressive 7.6 per cent, GVA without the net tax impact registers a lower 6.9 per cent.
    • This nuanced distinction highlights the role of net taxes and subsidies in influencing the overall economic performance.
    • Moreover, considering the growth pattern throughout the fiscal year, the average growth rate for the first three quarters stands at an impressive 8.2 per cent.
    • Extrapolating from this, the implicit fourth-quarter growth projection is approximately 5.9 per cent.
  • Effective Policy Measures: Robust Banking System and Corporate Balance Sheets
    • Despite the resilience showcased in the GDP growth figures, it is crucial to acknowledge that real GDP is yet to reclaim its pre-pandemic trajectory fully.
    • However, the concerted efforts of domestic strengths and policy initiatives have brought the economy closer to a 7 per cent growth path.
    • A significant contributor to this achievement lies in the strengthened state of bank and corporate balance sheets, illustrating the effectiveness of strategic policy measures.

An Analysis of Challenges and Anticipated Slowdown

  • High Interest Rates
    • The persistence of high-interest rates poses a significant challenge to sustained economic growth.
    • Elevated interest rates can discourage borrowing and investment, impacting both consumer spending and corporate expansion plans.
    • This situation is particularly relevant as monetary policy's efficacy is constrained due to inflation projections remaining above the Reserve Bank of India's (RBI) 4% target.
  • Normalization of Net Tax Impact
    • The current fiscal year has seen a notable contribution to GDP growth from rising net taxes (taxes minus subsidies).
    • However, there is an expectation that the net tax impact on GDP will normalise in the coming year.
    • This normalisation implies that the boost provided by the net tax factor to the economic growth rate may diminish, potentially contributing to a slowdown.
  • Global Economic Conditions
    • India's economic performance is intricately linked to global economic conditions.
    • Uncertainties in the global market, including trade tensions, geopolitical factors, and external shocks, could have spill-over effects on India's economy.
    • As a result, external factors beyond the nation's control may influence the overall economic outlook.

Private Consumption, Household Savings and Changing Trends

  • Growth Disparities - Rural vs. Urban
    • Rural consumption is likely to have trailed urban consumption, primarily due to the disproportionate impact of high food inflation on rural households.
    • Agriculture, growing at a mere 0.7%, suggests a sluggish rural economy, where food inflation tends to affect discretionary spending more significantly.
  • Influence of Food Inflation
    • High food inflation has been a significant factor influencing consumption patterns, especially in rural areas.
    • The data suggests that nominal food consumption spending increased by 13% last year, indicating the inflationary pressure on essential commodities.
    • This trend is likely to persist, affecting purchasing power and discretionary spending in both rural and urban settings.
  • Shifts in Consumption Patterns
    • Household consumption expenditure data indicates a gradual transition towards non-food items over time.
    • This shift aligns with rising per capita income, reflecting changing consumer preferences and an evolving market landscape.
    • It also highlights the need to adjust weightages in the consumer price index basket, currently based on 2011-12 consumption patterns.
  • Household Savings: Composition of National Savings
    • The disaggregated data reveals that household savings constitute a substantial portion, accounting for 61% of total savings in the economy.
    • Despite being the largest component, its share in GDP has declined to 18.4% in 2022-23, indicating shifts in the composition of savings over time.
    • Household savings are further categorised into financial and physical savings.
    • Financial savings, encompassing instruments like bank deposits and securities, witnessed a sharp fall to 5.3% of GDP in 2022-23 from 7.3% in the previous fiscal year.
    • Physical savings, driven by borrowings for assets such as houses, have increased, reflecting changing preferences and market dynamics.

Analysis of Public, Corporate and Household Investment Trends

  • Private Corporate Investment Trends
    • The data highlights a stagnant trend in private corporate investments, with no definitive signs of revival in the fiscal year 2022-23.
    • This stagnation raises concerns as private sector investments are instrumental in driving economic growth, creating jobs, and fostering innovation.
  • Public and Household Investments
    • In contrast to private corporate investments, both public and household investments have shown significant growth in fiscal year 2022-23.
    • Public investments, often influenced by government policies and infrastructure projects, contribute to economic development.
    • Household investments, including expenditures on homes and durable goods, indicate consumer confidence and economic stability.

Way Forward

  • Reduce Policy Uncertainty
    • There is a need for the government to play a role in reducing policy uncertainty and compliance costs.
    • A stable and predictable policy environment is crucial for encouraging private sector investments.
    • Addressing these concerns becomes essential to create an environment conducive to long-term corporate planning and sustained economic growth.
  • Broad-Based Revival of Private Investments
    • The government must recognise the importance of a broad-based revival of private investments, and its critical role in sustaining high growth rates over the medium term.
    • While the government's focus on infrastructure and targeted schemes like PLI has shown positive results, a more comprehensive approach is necessary to stimulate investments across various sectors of the economy.


  • India’s surprising GDP growth, driven by resilient domestic strengths and strategic policy focus, sets the stage for a nuanced analysis of the various economic components.
  • As India navigates through these multifaceted aspects, attention to private corporate investments, consumption patterns, and savings dynamics will be crucial for achieving sustained and inclusive economic growth.
  • Moreover, the government's role in providing policy certainty and reducing compliance costs emerges as a key determinant for unlocking the full potential of India's economic prowess.