GDP shows investment green shoots, CFO News, ETCFO

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After a long dry spell of monsoon in August, good news poured on the last day of the month. India’s Gross Domestic Product (GDP) growth printed at 7.8 per cent in the April-June quarter of 2023-24. On the same day, the country set a new record by surpassing 10 billion Unified Payments Interface (UPI) transactions, amounting to more than Rs 15 lakh crore, for the first time in August, in a remarkable accomplishment of digital advancement over the past seven years.

The GDP surge was attributed to increased government spending, robust consumption demand, and growth in the services sector. Notably, nominal GDP grew by 8.0% compared to 27.7% in the first quarter of FY23. Key sectors like trade, hotels, transport, and communication saw growth of 9.2%, while real estate and finance rose by 12.2%. Agriculture and electricity sectors grew by 3.5% and 2.9%, respectively. Private consumption, comprising 57.3% of GDP, increased by 6%. Economists had forecasted a growth rate of 7.8%, and the Reserve Bank of India predicted 8%. Services demand, investment activity, and capex initiatives played vital roles in the growth. The central government’s capital expenditure increased significantly.

Buoyed by the numbers, Chief Economic Advisor V Anantha Nageswaran stated that despite deficient monsoon rains, the economy is anticipated to achieve a 6.5% growth in the ongoing fiscal year.

“There is momentum in economic activity in general and it is not driven by price-related distortions. Therefore our projections still are very comfortably placed at 6.5 per cent for the current financial year,” he said.

He emphasised that inflation concerns are unwarranted due to the coordinated efforts of the government and the Reserve Bank to ensure adequate supply and price control. Nageswaran highlighted that food inflation should ease with fresh stock and government interventions, though the impact of low August rainfall remains a concern.


Finance Ministers optimism

This week itself, Finance Minister Nirmala Sitharaman highlighted a shift in the private capital expenditure cycle, which has been dormant for a prolonged period. She said that government capital expenditure has spurred private investment in infrastructure projects.

“I think the Indian private sector has come into the game…investors are coming forward, industry is coming forward,” she said, asserting that private sector capex had taken off.

Sitharaman’s optimism is backed by numbers.

Recent data from the Centre for Monitoring Indian Economy (CMIE) indicates a notable increase in the value of concluded government projects, reaching a peak in June. This record-breaking performance spans over a decade. In the preceding quarter, government projects with a total worth of Rs 6.9 lakh crore were successfully finalised, which is a huge jump over the previous high of Rs 1.5 lakh crore recorded in December 2021, according to CMIE’s data.

The assessment encompasses government-owned investment projects, offering a comprehensive insight into trends and achievements in the infrastructure sector. While this evaluation may not cover every single project, it serves as an indicator of the overall trajectory of the infrastructure domain.

During June 2023, around 227 projects were completed, which suggests that the surge in project value can be primarily attributed to the successful completion of larger projects, rather than a widespread accomplishment of smaller ones.


India Inc expansion

The conditions necessary for a surge in private capital expenditure have been in place for some time. Banks are on a sound footing, well capitalised to lend for growth, with bad loan issues way behind them. Companies have reduced their debt during a phase of reduced investment and are ready to invest. As the government’s capital expenditure cycle continues to accelerate, it creates a more favourable environment for private investments. A recovery in demand, propelled by credit, is boosting the utilisation of production capacity in consumer-centric industries like automobiles.

Additionally, the revival in the housing sector has stimulated investments in industries like steel and cement. Notably, lending by banks for project finance, an early indicator of investment, has experienced a notable increase. The demand for corporate credit is being driven by greenfield investments in sectors prioritised by the government, such as renewable energy and infrastructure expansion.

However, investment cycles are lengthy, so the turning point might require patience. The current cycle is shifting while interest rates are above the historical trend. A return to the trend would necessitate confidence in managing inflation. This approach would also uphold consumption demand, crucial for widespread capacity expansion. The Finance Minister’s optimism about an investment resurgence is reassuring, and its practical application is awaited.

(Editor’s Note is a column written by Amol Dethe, Editor, ET CFO. Click here to read more of his articles exploring several buzzing topics.)

  • Published On Sep 1, 2023 at 09:09 AM IST

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