India’s 8.2% Growth: Strengths & Fault Lines

Why in News?

India recorded a strong 8.2% GDP growth, supported by robust manufacturing and services performance. However, the IMF graded India’s national income accounting system as ‘Grade C’, pointing to statistical limitations and structural data gaps.

Background & Context

• India is currently among the fastest-growing major economies, outpacing global growth expectations.
• The growth is taking place amid global economic uncertainties—weak global demand, geopolitical tensions, and tightening international financial conditions.
• The IMF’s assessment has reopened a key debate: Is strong economic growth sustainable without strengthening India’s statistical and institutional framework ?

Current Growth Performance

India’s GDP for the quarter rose to ₹48.63 lakh crore, surpassing last year’s output and showing sustained recovery beyond post-COVID normalisation.

Sector-wise Performance

• Manufacturing: ↑ 9.1% — improved industrial demand and rising capacity utilisation.
• Services: ↑ 9.2% — now 60% of GDP; financial services witnessed 10.2% growth.
• Agriculture: ↑ 3.5% — helped by better reservoir levels and horticulture output.

Additional Growth Indicators

• Real GVA: ₹82.88 lakh crore → ₹89.41 lakh crore — indicating genuine value addition.
• Nominal GDP: up 8.8%, reflecting subdued inflation.
• Private consumption: ↑ 7.9%, signalling strong household demand.

Macroeconomic Stability Indicators

India’s macroeconomic fundamentals remain stable:

• Inflation eased and remained close to the RBI’s target band.
• Bank credit grew steadily, supported by well-capitalised banks.
• Fiscal consolidation progressed: GST collections and direct tax revenues continued to perform strongly.
• Current account deficit remained modest—supported by strong services exports and stable forex reserves.

These indicators reinforce India’s economic resilience.

IMF’s Grade C Assessment: Implications

The IMF’s ‘Grade C’ rating reflects deficiencies in India’s statistical system, not its growth performance.

Key Concerns Highlighted by IMF

• Use of an outdated 2011–12 base year.
• Overreliance on WPI, absence of a comprehensive Producer Price Index (PPI).
• Single deflation method creating cyclical distortions.
• Mismatch between production and expenditure GDP estimates.
• Gaps in representing the informal sector.
• Absence of seasonally adjusted data.
• Lack of consolidated state and local government finances since 2019.

The IMF notes that India requires a stronger statistical backbone to match its economic scale.

Uneven Recovery Across Sectors

Growth is strong but not evenly distributed.

• Mining: barely grew (0.04%) — due to extended monsoon disruptions.
• Electricity, gas & utilities: ↑ 4.4%, limited by a milder winter reducing energy demand.

Sectoral Composition of GVA

• Primary sector: 14%
• Secondary sector: 26%
• Tertiary sector: 60%

Despite a high-services share, India’s workforce remains concentrated in low-productivity agriculture and informal services—reflecting a structural imbalance.

Structural Vulnerabilities

1. Weak Export Competitiveness

• Slow scaling of high-value manufacturing
• Global geopolitical uncertainties
• Frequent tariff changes impacting investor confidence

2. Low Labour Productivity

• Majority of labour still in low-productivity sectors
• Slow pace of formalisation despite rapid digital growth

3. Weak Institutional and Statistical Capacity

• Outdated base year
• Incomplete data representation
• Lack of uniform data from States and local bodies

4. Persistent External Pressures

• Rupee faces downward pressure due to a strong USD
• Volatile foreign capital flows
• Structural current account pressures

These vulnerabilities do not undermine India’s 8.2% growth but highlight the reforms needed to sustain long-term economic momentum.