Statsguru: India's GDP growth may miss govt estimate; IIP data fuels doubt

The government's final consumption expenditure provided a temporary lift to the economy in Q2FY24 but it has since faded sharply, even registering a decline in Q1FY25

The recent Index of Industrial Production (IIP) data has intensified doubts about the official gross domestic product (GDP) growth projections for Q4 and full FY25. The IIP growth rate slowed to 3.6 per cent in Q4 of FY25 — the second-lowest in eight quarters. IIP measures volume of industrial production, while GDP is value addition. For instance, if Maruti Suzuki dispatches one Alto and Ciaz each to a dealer, it would reflect as addition of two units in the manufacturing segment of IIP, and then be adjusted for their weightings. However, the dispatch of a Ciaz would likely increase manufacturing growth more than Alto in the GDP data. The volume index is, nonetheless, a useful bellwether for industrial performance.    

The private final consumption expenditure (PFCE) provided a temporary lift to the economy in Q2FY24, but has since reduced sharply; in fact, it registered negative growth in Q1FY25. This withdrawal of public support coincides with muted gross fixed capital formation growth. Economists find a high 9.2 per cent implied growth in PFCE for Q4 in the second advance estimates an over-estimation. For instance, a National Institute of Public Finance and Policy presentation — “Impact of Trump shock on Indian Economy: An assessment” — authored by Rudrani Bhattacharya, Manish Gupta, Radhika Pandey, and Dinesh Kumar Nayak, says this private consumption demand in Q4 is improbable because urban demand was stagnant before the “Trump shock”, even if rural demand was buoyant.  

 

 Experts point out unrealistic implied projections in the agriculture, industry and services sectors in Q4. The paper cited above says the implied growth in agriculture in Q4 is improbable because the sector is stressed due to weather factors and a rise in cost of production. Similarly, industrial growth suffered broadbased downturn in Q4, while the implied growth in services is unrealistic except in information and communication, as the overall tertiary sector growth stagnated.       Because of these factors, 6.5 per cent GDP growth rate in FY25, as projected by the second advance estimates, looks a bit of an over-estimation.  

 

Even so, India would be the fastest-growing major economy in the world in FY25. Besides, India will overtake Japan to be the fourth-largest economy in 2025, according to IMF estimates.