USD five trillion in 2029

Last week the National Statistical Office (NSO) released its first advance estimates (FAE) of the national income for the current financial year 2023-24. The growth in real GDP during 2023-24 is estimated at 7.3% as compared to 7.2% in 2022-23. This projection of growth is higher than the latest forecast of the Reserve Bank of India (7%) and professional forecasters (6.0 to 6.9%). Given the economic momentum, it is likely that growth for the next financial year FY25, currently pegged ~6.5%, may also get revised upwards.

As per FAE, the Nominal GDP (GDP at Current Prices) in the year 2023-24 is estimated at ₹296.58 trillion (USD 3.56trn), as against the Provisional Estimate of GDP for the year 2022-23 of ₹272.41 trillion. The growth in nominal GDP during 2023-24 is thus estimated at 8.9%, much slower than 16.1% in 2022-23.

It is critical to note that most statistical numbers relevant to the financial market investors are benchmarked to the nominal GDP. For example, corporate profits, tax collections, fiscal deficit, wage growth, and government borrowings are correlated to the nominal GDP. Market capitalization to GDP, a popular stock market gauge to assess overheating (or otherwise), also uses nominal GDP as a denominator. A slower nominal GDP growth therefore could impact many of these parameters adversely.

Some of the key points worth noting in FAE are as follows:

·         Consumption has slowed down considerably. Private consumption is estimated to be 56.9% of real GDP (58.5% in FY23 and 58.6% in FY22) and Government consumption is estimated to be 9.6% of real GDP (9.9% in FY23 and 10.6% in FY22).

Per capita real consumption expenditure in FY24 is estimated to be Rs70,065, a growth of 3.5% over FY23. This is one of the lowest real consumption growth rates in many years.

Per capita Real GDP is estimated to be Rs1,23,144 (USD1479), a growth of 6.4% over FY23.

Considering that per capita real GDP is estimated to grow at 6.4%, there is a deceleration in the propensity to consume. In FY23 per capita consumption grew 6.4%, higher than the 6.1% growth in per capita real GDP. It would be interesting to see whether the lower propensity to consume is due to a sharp rise in inequality of income or a higher propensity to save.

In nominal terms, there is no noticeable change in consumption as compared to FY23.

·         The share of Investments in GDP continues to grow. Gross Fixed Capital Formation (GFCF) is estimated to be 34.9% of real GDP (34% in FY23 and 32.7% in FY22).

In nominal terms, GFCF is estimated to be 29.8% (29.2% in FY23).

·         Trade deficit to widen. Exports will likely slow down to 22.2% of real GDP (23.5% in FY23) while imports may grow faster to 26.9% of real GDP (25.6% in FY23).

In nominal terms, however, imports are estimated to slow down to 23.7% of GDP (26.4% in FY24.

·         Agriculture crashes, manufacturing & construction lead the growth. Agriculture and allied sectors are estimated to grow 1.4% (4% in FY23). Rice production is estimated to fall 5.4%.

Manufacturing growth recovers to 6.5% (1.3% in FY23). Construction sector growth sustains at 10.7% (10% in FY23).

Trade, hotel, transports and communication sector growth slows down to 6.3% (14% in FY23).

It is noteworthy that nominal growth in manufacturing is slower at 4.4% as compared to 7% in FY23. WPI of manufactured goods is estimated to deflate -2% against 7.5% inflation in FY23.

·         Higher indirect taxes. In real terms, Net taxes on products are estimated to grow by 12.5% (10.1% in FY23)

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USD 5trn in 2029. If the nominal GDP of India grows at a CAGR of 7%, net of USDINR depreciation, India will be a USD five trillion economy in five years, i.e., by the end of FY29. A faster growth or USDINR appreciation can take us there a couple of years early, maybe.