According to Nikhil Gupta, chief economist at Motilal Oswal Financial Services, the India’s GDP may expand only mildly over the next few years due to the uncertainty surrounding a capital expenditure-led recovery and the need for households to rebuild their savings, which may restrain consumption growth.
The first advance estimate from the statistics ministry predicts that India’s GDP will increase by 7% between 2022 and 2023, whereas the Reserve Bank of India (RBI) expects growth to be 6.4% in 2019. Gupta anticipates a slowdown in India’s growth to 5.2 percent in 2023–2024.
What’s the reason behind India’s GDP slow growth?
According to Gupta, signs of a slowdown in household spending growth, which has been “very strong” in recent quarters, can already be seen in some retail enterprises’ sales and volume expansion.
More significant is the explanation for the current steady growth in consumption. Gupta claims that households have been reducing their savings and increasing their borrowing, which has kept the rate of consumption growth constant. As per the data from the statistics ministry, private final consumption expenditure has climbed by an average of 7% each year since 2013–14, with the exception of the pandemic-hit year of 2020–21.
Gupta predicts that household financial savings were just 4% of GDP in the first half of the current fiscal year, compared to 7-8% in the years prior to COVID and approximately 7.5 percent in 2021–2022.
“Savings are one of the main elements affecting economic growth, thus it is impossible for me to discuss structural concerns when savings decrease to such a level in a young nation like ours. Lack of funds makes it difficult to make investments and experience sustainable growth “said Gupta. Gupta is concerned about a consumption-led growth model in which consumption increases due to a fall in savings rather than solid income growth.
The Center has stepped up its investment game recently and set a record capex goal of Rs. 10 lakh crore for 2023–2024. Gupta asserted that overall capex rather than spending by any particular segment is what really matters.
Gupta notes that while the capex of the central government has increased, that of the states has decreased, and that the capex of the former will surpass that of the latter for the first time in 2021–2022.