Much of the last fiscal’s economic activity was fueled by investments, which more than offset the slowdown in private consumption demand and the drag from external demand. On the supply side, if the industrial sector sustained momentum, the services sector seems undecided about marching ahead, while the agricultural sector’s growth is dispiriting. Put another way, it’s like a chef’s salad with both healthy and unappetizing elements, but in the end, they together make the spread wholesome.
Among all, investments were the major drivers of domestic demand, buoyed by government spending on infrastructure. It accelerated to 8.9% in FY24 from 6.6% in FY23. In fact, the RBI in its annual report too acknowledged the role of investments. Among the components of GFCF, the construction sector gathered traction as evident in robust growth in its proximate coincident indicators – steel consumption and cement production, it noted. Capacity utilisation of the manufacturing sector remained above its long-term average, increasing to 74.7% in Q3, FY24.
While investments put in a respectable show, the dismal growth of both private consumption and government consumption took the bloom off the cheek. If private consumption grew by 4% in FY24, government consumption demand remained subdued at 2%, perhaps sticking to fiscal consolidation. The upshot though is that various sub-components of domestic consumption are exhibiting signs of improvement in the second half of the fiscal gone by. If two-wheeler sales, an indicator of rural demand, picked up in the second half of FY24, while demand for work under MGNREGA too tapered in H2, suggesting rural demand recovery. Urban demand was supported by improvement in the labour market conditions, higher disposable incomes, tapering of retail inflation and double-digit growth in retail credit, according to the RBI.
Meanwhile, aggregate supply, measured by real gross value added (GVA) at basic prices, expanded by 7.2% in FY24 as against 6.7% in FY23, propelled by the industrial and the services sectors, even as the slack in the agriculture sector continued.
Agriculture and allied sectors saw a rather disappointing growth of 2.1% as against 4.4% a year earlier, as food grains production declined due to the deficient and uneven southwest monsoon rainfall. The government, on its part, rolled out measures throughout the year to maintain domestic demand-supply balance in food items to mitigate inflationary pressures. Some of the measures include releasing the public foodgrains stock through open market sales, export restrictions on cereals and pulses, onions and easing of access to import pulses and edible oils.
On the other hand, the industrial sector did reasonably well with 9.7% growth in FY24 as against 2.1% registered in FY23. Within industries, manufacturing GVA accelerated by 9.9% as against a contraction of 2.2% the previous year, benefiting from the boost to corporate profitability provided by the easing of input costs. Industrial activity was also supported by the sustained momentum in mining and electricity generation, which turned in 7.5% growth in FY24. While infrastructure and capital goods production gained from the government’s push to capital expenditure, the recovery in consumer goods was volume-driven, with growth in rural demand catching up with the urban segment. According to RBI data, within the manufacturing sector, 13 of 23 industry groups recorded y-o-y expansion, led by transport equipment, motor vehicles and basic metals.
The services sector, with a share of over 63% in GVA, is the mainstay of aggregate supply, but is grappling to grow. In FY24, it registered a growth of 7.6%, lower than the previous year’s 10%. Proximate indicators of services sector such as air traffic, railway freight, automobile sales, steel consumption, GST E-way bills and foreign tourist arrivals recorded buoyant expansion.
Though construction activity accelerated, it remained at a kissing distance from registering double-digit growth at 9.9%, as against 9.4% in the previous year. The rising demand in the housing sector and the government’s thrust on infrastructure has given enough thrust to the sector, that’s now the world’s third largest.
The worrying bit comes from the hospitality sector, whose growth slowed down to 6.4% in FY24, as against a robust 12% growth in FY23. Likewise, financial, real estate and professional services’ growth slowed down to 8.4% from 9.1%, while public administration, defence, and other services stood at 7.8% down from 8.9% and other services (PADO) registered a steady growth.
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