India's GDP growth based on 1st Advance estimate and its implications

 Here's a summary of the press release on the First Advance Estimates of Gross Domestic Product (GDP) for 2024-25 in India, including relevant graphs and tables.

Key Highlights:

• Real GDP Growth: The Indian economy is estimated to grow by 6.4% in FY 2024-25, compared to the provisional estimate of 8.2% in FY 2023-24.
• Nominal GDP Growth: Nominal GDP (GDP at current prices) shows a growth of 9.7% in FY 2024-25, up from 9.6% in FY 2023-24.
• Real GVA Growth: Real Gross Value Added (GVA) is projected to grow by 6.4% in FY 2024-25, compared to 7.2% in FY 2023-24.
• Nominal GVA Growth: Nominal GVA has a growth rate of 9.3% in FY 2024-25, up from 8.5% in FY 2023-24.
• Sectoral Performance:
  • Agriculture: Real GVA growth is estimated at 3.8%, a significant increase from 1.4% in FY 2023-24.
  • Construction: Shows strong growth of 8.6%.
  • Financial, Real Estate & Professional Services: Registered a growth of 7.3%.
• Consumption Expenditure:
• Private Final Consumption Expenditure (PFCE): Grew by 7.3% in FY 2024-25 (4.0% in FY 2023-24).
• Government Final Consumption Expenditure (GFCE): Rebounded to a 4.1% growth rate from 2.5% in the previous financial year.

Below are some of the relevant graphs to be considered for understanding the health of Indian economy:

• The 1st Advance estimate of GDP for FY25 describes a mixed picture of India's economic performance in FY25, showing deceleration in some key areas despite overall growth. Let's summarize the key points and their implications:

  Key Observations and Implications:

  • GDP Growth Slowdown: Real GDP growth has significantly slowed, and nominal GDP growth shows stagnation. This indicates a weakening overall economic expansion.
  • Per Capita Nominal GDP Increase: Despite the slowdown, per capita nominal GDP is projected to rise substantially (almost Rs 35,000 more than FY23). This suggests that even with reduced overall growth, the increase in per capita income is driven by population factors.
  • Agriculture: Positive growth in agriculture is encouraging. A 3.8% increase in FY25 versus 1.4% in FY24 signals continued strength in this vital sector.
  • Industry Slowdown: All sub-segments of the industrial sector are expected to decelerate in FY25. The sharp decline from 9.5% in FY24 to a projected 6.2% in FY25 is a major concern, suggesting potential weakness in manufacturing and mining.
  • Service Sector Slowdown: The service sector, while still growing (7.2%), is also experiencing a deceleration. Reduced growth in "Trade, hotels, transport..." and "Financial..." sectors contributes to this overall decline. Public administration remains a relatively strong performer.
  • Aggregate Demand Weakness: The overall picture points to a weakening aggregate demand. Although government consumption and exports show positive growth, the significant slowdown in gross capital formation and valuables is worrisome. The decline in capital formation is particularly concerning for long-term economic growth. The negative real growth in imports also reflects this deceleration.
  • Private Consumption: While private consumption shows strong real growth (7.3%), exceeding per capita GDP growth, this may be unsustainable. The text suggests that this could be financed by reduced savings, a potentially problematic trend.
  • Credit Market Stress: Stress in the credit market, particularly among NBFCs and in certain banking segments (small ticket advances, credit cards), is a significant concern. The sharp slowdown in credit growth (from 15.4% YTD in the previous year to 7.0% YTD in FY25) directly points toward an impending GDP slowdown. This is further supported by empirical evidence linking credit growth to GDP.

  
  

Courtesy:RBI, SBI Research

Overall Assessment:

The Indian economy in FY25 is displaying a complex scenario. While per capita nominal GDP is expected to grow, this masks a significant deceleration in real GDP growth and concerning trends in various sectors. The weakening aggregate demand, slowdown in capital formation, and stress in the credit market pose significant risks to future economic prospects. The strong performance of private consumption may not be sustainable in the long run, potentially leading to increased debt and decreased savings. Close monitoring of the credit market and investment activity is crucial. The relatively positive performance in agriculture may cushion the impact of the slowdown in other sectors, but continued weakness in industrial and service sectors will likely impact future GDP growth.

First Interest rate cut by RBI in Feb 25 Monetary policy is expected and this may provide some impetus to the industry and individuals in managing their interest costs. This is likely to give a boost to GDP in the coming quarters.

RBI Dec 2024 Monthly Bulletin reveal mixed picture for Indian Economy

 The RBI Bulletin (December 2024) states that high-frequency indicators (HFIs) for October and November 2024 show a mixed picture regarding India's economic activity:

A. October 2024:

• GDP Growth: The economic activity index shows a pick-up in momentum during October, suggesting that the slowdown in Q2 was bottoming out.
• Consumer Confidence: Consumer confidence indicators registered a sequential moderation.Amazon
• Supply Chain Pressures: Supply chain pressures remained below historical averages, showing some further easing.
• Inflation: Headline CPI inflation increased to 6.2 percent, exceeding the upper tolerance band, primarily driven by a sharp rise in food prices, although core inflation also increased.

B. November 2024:

• GDP Growth: Headline CPI inflation moderated to 5.5 percent, driven by easing food prices, suggesting continued economic recovery. Strong festival activity and a sustained upswing in rural demand fueled this recovery.
• Consumer Confidence: Consumer confidence remained above the neutral mark.
• Supply Chain Pressures: Supply chain pressures remained relatively low.
• Inflation: Headline CPI inflation decreased to 5.5 percent, driven by easing food prices and a favorable base effect. Core inflation also showed a modest increase.
• External Sector: Merchandise exports contracted, while imports grew significantly, widening the trade deficit.

I. Global Economic Context:

The global economy demonstrates resilience with moderate growth and decelerating inflation. However, this stability faces significant headwinds:

• Geopolitical Tensions: Conflicts and trade wars pose risks to global growth and price stability. The rise of protectionism could significantly disrupt trade and investment.
• Supply Chain Issues: While supply chains have shown improvement, geopolitical factors continue to introduce volatility. Commodity prices, while generally declining, show fluctuations in energy and food sectors. Food insecurity remains a major concern in low- and middle-income countries.
• Financial Markets: Markets display mixed signals. While stock markets have seen periods of growth, concerns remain regarding inflation, interest rate decisions by central banks, and the potential for recessions. The US dollar's strength impacts other currencies. The search for yield continues to drive investment choices.

II. Indian Economic Performance:

India's economic performance exhibits a mixed picture:

• Growth: GDP growth in Q2 (2024-25) was lower than anticipated, primarily due to a slowdown in private consumption and investment, and weak performance in manufacturing. However, high-frequency indicators suggest a rebound in Q3, driven by robust festive demand, a rise in rural demand and good agricultural prospects.
• Inflation: Headline CPI inflation moderated in November 2024 but remains above the upper tolerance band, primarily driven by food inflation. Core inflation also shows a modest increase. The RBI anticipates a decline in food inflation in Q4, though risks remain due to weather and international commodity prices.
• Aggregate Demand: Private consumption expenditure registered growth in Q2, driven by strong rural demand. Investment, however, remained weak. Net exports contributed positively to growth.
• External Sector: Merchandise exports contracted in November 2024, influenced by both negative momentum and an unfavourable base effect. Imports, however, registered a significant increase. The trade deficit widened substantially, driven by a surge in oil imports, although the share of oil in the total trade deficit decreased. Services exports continued to grow robustly. Foreign direct investment (FDI) inflows decelerated during the period, though they remain significant. Foreign portfolio investments (FPI) were largely negative in the earlier part of the period, though they turned positive in December.
• Financial Sector: System liquidity remained largely in surplus in the second half of November and early December. The Reserve Bank used open market operations to manage liquidity. Interest rates showed upward pressure.

III. Monetary Policy Decisions:

The MPC decided to hold the policy repo rate steady at 6.50 percent. This decision reflects a cautious approach, balancing the need to address inflation while supporting sustainable growth. The CRR reduction aims at injecting additional liquidity into the system.

IV. Other Key Developments:

• Financial Inclusion: Initiatives to enhance access to credit for MSMEs and the agricultural sector, including the expansion of pre-approved credit lines via UPI, and improvements in digital payments.
• Financial Regulation: Measures to strengthen the financial system's resilience and address emerging risks, including enhancing cybersecurity, and implementing a new approach to identifying and addressing stressed assets in the banking system.
• FinTech and AI: Initiatives to leverage the potential of FinTech and Artificial Intelligence (AI), including the development of a framework for responsible AI in the financial sector.

India's Q2 FY-25 GDP growth rate-why muted?

 India's Q2 FY25 GDP figures reveal a significant economic slowdown, falling to 5.4% year-on-year growth—a substantial drop from the projected 6.6%. This underperformance stems from a broad weakening across investment and consumption sectors. Private investment significantly lagged expectations, growing at only 5.4% compared to 7.5% in Q1, despite increased government spending. Consumer spending also weakened, declining to 6% year-on-year growth from 7.4% in Q1, primarily due to sluggish urban demand hampered by wage stagnation and elevated food prices. Export growth decelerated sharply (2.8% YoY from 8.7% in Q1), while imports contracted.

The Gross Value Added (GVA) mirrored this trend, slowing to 5.6% year-on-year. Industrial activity suffered a particularly sharp decline, with mining and manufacturing sectors experiencing contractions. However, the agricultural sector showed some positive growth. While the services sector maintained its growth momentum, high-frequency indicators pointed to persistent weakness in private consumption, especially in urban areas.

Consequently, growth forecasts have been revised downwards. The FY25 growth projection is now anticipated to be significantly lower than the initial 7.2% estimate, possibly around 6.3%, reflecting the weak first half of the fiscal year (6% YoY). While a modest improvement is expected in the second half, the FY26 forecast has also been lowered to 6.6% from the previous estimate of 6.8%. Inflation remains a key concern, with the 6.2% rate creating headwinds for potential monetary policy easing. While measures to improve liquidity may help offset tighter financial conditions, the RBI is likely to prioritize monitoring inflation trends before considering interest rate cuts.

In essence, India's economy faced a steeper-than-expected slowdown in Q2 FY25, primarily driven by weak investment of both Government and the private and the falling urban consumption. Although the agricultural sector displayed strength and government spending increased, the overall economic outlook remains cautious, highlighting the need for potential policy interventions to bolster growth and mitigate the effects of constrained liquidity.

IN the above chart we have tried to look at how GDP Annual Growth rate every quarter , Gross Fixed Capital formation and Consumer spending data have correlated.It shows high combined Consumer spending coupled with high GFC formation has always pushed up GDP growth with a lag effect of one or at the most two quarters.A weak GFC formation + Weak Consumer spending is pulling down GDP growth also with a lag effect.

So, IMHO, to push up Consumer spending, GOI should look at Fiscal push by slashing the Excise on Oil-Petrol & Diesel by atleast Rs10 since Inflation itself is a Tax and RBI should also address it through appropriate Rate and/or Liquidity decisions without any delay.Any undue delay in Rate cut can itself feed into Inflation.

"Maha" elections and its effect on India's politics!

 Maharashtra elections have come and gone.I am not going to slice and dice the election results but only look at larger picture it offers for some one looking at India's politics from a third state-Tamilnadu.

My views are personal and I do subscribe to right-wing ideology.

Ek hai tho Safe hai" is such a powerful message which I was taught in Schools by my Teachers.But if PM of the country says it becomes divisive agenda in the eyes of opposition.

Batenge to Katenge " is another slogan emphasizing that Divide and Rule policy of British Imperialism almost destroyed us and let us not repeat the history knowingly now.Those who dont learn from history are not only condemned to repeat but condemn their progeny and future generations also.

If the above two slogans mean dividing us on religious basis so be it.

When Gandhi ji said that British imposition of separate Muslim constituency would divide India was he not echoing the same sentiment of "Ek hai tho Safe hai".

When he said India should not be divided and partitioned was he not saying "Batenge tho Katenge", if not in the same words.

Rahul Gandhi said 'Bharat Jodo" , it was appreciated by the secular media but when PM Modi says "Ek hai tho Safe hai" they are reading  between the words and line! This is called the attitude of liberal media.

Women folk lured by "Ladki Bahin Yojana" have voted enmasse to Mahayuti. So some electoral pundits are saying that ladies have become the determining factor in electing the ruling parties in Indian elections-Women empowerment! Now all said and that, majority "Maha" women have identified who should rule them for the next 5 years.

People of Maha have clearly voted in favour of Stability with Growth, having understood whom to believe and trust for the next 5 years.

It is as simple as that! No right wing ideology.

https://www.amazon.in/tryprime?tag=00705fb4-21

Adani & his latest adventure!

 Adani is known for building a mega business empire in India and abroad but his adventures are far more enthralling than many fiction stories - it can rival "The Adventures of Tom Sawyer"!!

The latest salvo from US is the indictment of DOJ,New York based on FBI investigation into bribery conspiracy alleged to have been done within India involving Indian officials of the State Governments.

There are too many coincidences and red-herrings.

The indictment comes a day after Maha and Jharkhand elections happen but well before the winter session of the Parliament.

Adani has been close to Israel by taking control of its Haifa port and has warned Bangladesh about cutting off power supply if his overdue power bills are not paid.

He has made enemies with China in African & Australian projects and last but not the least, has sent a friendly X message to Trump on his win promising more investments and jobs in US.

All the above point towards conspiracy theories and plots hatched against Adani. But why Adani detractors and conspirators instead of accusing BJP Central Govt and BJP State Govts. have selectively picked up all Governments run by Congress and its alliance partners? So, either conspiracy is not there against Adani and BJP or conspiracy is against Adani and Congress-somebody missed the target?!!

Now DOJ indictment of Adani's conspiracy to bribe does not mention a single bribe taker  and the methodology used to bribe these Indian officials. Had FBI known this bribery conspiracy earlier-alleged to have taken place in 2021 &2022 mainly,  they could have legitimately asked Indian Govt to investigate on this as Principle of Comity of nations requires this since the illegal act as alleged , has taken place within India by Indian Citizens.

USA is not world's policeman to snoop on private business men like Adani ,who is a citizen of India , domiciled in India and running legitimate large businesses. Getting private emails of Adani by hacking and snooping is an illegal act done by US Agencies.

Further the US investor funds obtained by Adani was only US175 million but Adani had spent US265 million on bribes as per FBI!!!

Coming to the alleged bribe amount of US265 million to Indian officials and that too over Rs1750 cr to AP Officials alone begs the question of logic.Moreover my CA friend tells me whether any sane business man give US265 million upfront to earn US2 billion over 20 years as alleged !Time value of money in India is costlier with high interest rate in India .Probably FBI did not take into account Indian Interest rate before coming out with this ridiculously huge bribe amount. Further no names of Officials or Politicians , who are the alleged bribe takers , mentioned in the Indictment of Bribe giver!!

Too many loose ends or goof ups?.

Should Food inflation be targeted by RBI or not?- A pragmatic and nuanced approach

 When it comes to Inflation targeting by RBI, reducing the weight of food inflation(46% as per RBI) in the headline inflation in India, rather than removing it entirely, could be a more balanced and effective approach for several reasons:

1.GOI increased the import duties on edible oils in Sep/Oct 2024 inorder to raise the remunerative prices for domestic oilseeds production and thereby incentivise more Oilseeds production. This import duty increase has pushed up the Edible oil prices by design.

2.Acknowledgment of Food Price Impact: Food prices significantly influence the cost of living for households, especially those with lower incomes who spend a larger proportion of their earnings on food. By reducing rather than eliminating the weight, policymakers acknowledge the importance of food prices while recognizing their volatility.

3.Mitigating Volatility: Food prices can be subject to significant fluctuations due to seasonal changes, supply chain issues, and other factors. By decreasing their weight in the overall inflation calculation, the impact of these short-term spikes can be moderated while still reflecting their role in consumer spending.

4.Balanced Approach: A reduced weight allows for a more comprehensive view of inflation that considers core inflation trends alongside food prices. This approach can provide insights into underlying inflationary pressures without allowing temporary food price spikes to disproportionately skew inflation metrics.

5.Targeting Policy Responses: Adjusting the weight of food in the inflation tracker can help policymakers design responses that target both inflationary trends and specific concerns regarding food prices, ultimately leading to more nuanced monetary and fiscal policies.

6.Consumer Relevance: Maintaining some level of food price representation in the inflation measure keeps the metrics relevant to consumers. They are directly affected by food prices, and any inflation measurement should reflect real-world conditions.

7.Communication and Credibility: Policymakers must communicate their inflation strategies clearly. Reducing the weight, instead of removing food prices, may maintain credibility with the public, as it shows a commitment to understanding and addressing all components of inflation, including essential goods like food.

8.Flexibility for Adjustments: This approach offers flexibility for adjustments. If future data show that food prices stabilize, the weight can be re-evaluated and potentially increased, creating a responsive inflation targeting framework.

Therefore, The Balance of Convenience lies in the reduction of the weight of food inflation in the headline tracker rather than eliminating it entirely, as this approach strikes a practical balance. It allows policymakers to account for the realities of consumer spending and economic conditions while mitigating the impact of short-term volatility in food prices. This method promotes a more robust understanding of inflation dynamics, ultimately guiding more effective monetary policy.

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