Economy Slowing: Whither ‘Make in India’

By Pradeep Kumar Panda

Bhubaneswar, June 22: The provisional estimates of the national accounts for 2022–23, released by the National Statistical Office, threw up some surprises. The growth of gross domestic product (GDP) slowed down from 9.1% in 2021–22 to 7.2% in 2022–23, a fall of around 2 percentage points. Consequently, the growth of per capita income also fell by more than a percentage point from 7.6% to 6.3% during the period.

Slump in the manufacturing sector and slack consumption demand remain major concerns.
The optimists take comfort in the fact that the slowdown was lower than anticipated. They also feel reassured by the numbers which show that the GDP growth in the two years after the pandemic averaged higher than that of the two pre-pandemic years and the medium-term growth rate.

The sectoral gains were also reassuring. This is because the pickup was marked in both industry and services. However, the average growth rate in agriculture has slowed down marginally in the post-pandemic years. But it still hovered close to the medium-term trend rates.

Despite this array of gains, there are several causes for concern. One important aspect that remains a matter of great concern is the skewed growth of some core sectors. The most worrying of these is in industry. Despite major initiatives of the government to boost industrial output, like “make in India” and the productivity-linked incentive scheme, the growth of this segment slumped by more than half and slowed down from 11.6% in 2021–22 to 4.4% in 2022–23. Thus, the services remained the lead sector with the major contribution to the overall growth of the economy. Its contribution to the overall growth soared up from half in the previous year to around three-fourths in 2022–23.

In contrast, the contribution of the industry to growth declined by half to barely around one-fifth. This dismal performance of industry was mainly on account of the slack in the manufacturing sector. The output in the manufacturing sector, the largest segment of industry, has remained almost stagnant. The growth of this segment fell sharply from 11.1% to 1.3%.

This sharp fall was unsurprising. In fact, the trends over the last five years show that the 3.5% growth averaged by manufacturing was lower than that of agriculture where growth was a higher 4%. The manufacturing sectors seems to have clearly gone down in the dumps.
The slowdown was also significant in mining and quarrying segment, where the bulk of the value addition is from the oil and gas production. Here, the growth slid from 7.1% in 2021–22 to 4.6% in 2022–23. The growth of the construction sector also fell by around one-third to 10%.

However, the growth of electricity output declined only marginally and it remained buoyant at 9%. In the services sector, only two of its three major segments did reasonably well. The best performance was in trade, hotel, transport, and communications, where growth touched 14%, the highest since the beginning of the current national account series of 2010–11.

The growth of finance, real estate and professional services also picked up substantially to 7.1%. However, value added in public administration, defence and other services slowed down from around double-digits to just 7.2%, mainly on account of the fiscal consolidation efforts of the union government.

Budget numbers show that while the states have continued to increase expenditure outlays to fund welfare programmes and stimulate spending, the union government has steadily cut down the relative size of its budget.
Apart from the stagnant structure of industry, the other more important reason for worry is the continued slump in consumption. The national income estimates show that while the levels of both government and private consumption expenditure fell in 2022–23, the level of investments picked up.

The government’s final consumption expenditure at current prices fell by almost a percentage point to 10.3%, the lowest in six years. This fall can also be traced to the sustained fiscal consolidation efforts of the union government.
However, the aspect that is of grave concern is the shrinkage in the size of private consumption, which accounts for the bulk of the demand in the economy.

The gross private consumption expenditure fell to 60.6% in 2022–23, the lowest in four years. The shrinkage
in private consumption will severely affect the living conditions of the population, especially those at the lower end of the scale. One reason for the shrinkage in private consumption demand is the high increase in prices or inflation.

The national income deflators, which are the broadest measures of inflation that cover the prices of all the goods and services in the economy, remained at a high 8.8% in 2022–23. The impact of such surging price levels can be severe, especially since the prices of agriculture and forestry products have also now soared up close to double-digit levels for two consecutive years.

Such a sharp increase in food prices is sure to have a negative impact on consumption, especially since most of the available indicators show that the post-pandemic recovery has been K shaped. This skewed recovery has pushed up demand for the high-end products much more sharply than that at the lower end where demand remains largely muted.

However, the skewed nature of the recovery that has squeezed the real earnings of the low-income groups while boosting the high-income classes, seems to have helped increase the gross fixed capital formation. It rose to 29.6% of the GDP in 2022–23, the highest in the last four years.

However, sustaining these gains is rather difficult given the slump in consumption demand. Certainly, there seems to be nothing much to cheer about, despite the oft-repeated claims that India is one the brightest spots in the global economy.

About The Author