Does India’s healthy growth rate really tell us the true story of the actual health of the economy?

India released its first quarter (Q1) of FY24 GDP data on August 31. Real GDP growth came in at 7.8 percent y-o-y, broadly in line with RBI’s expectation of 8 percent.

India is currently the only major economy globally that is registering a 7+ percent growth rate which is not a bad number. at all.

Amongst the key global economies, Indonesia is following us at ~5 percent. China is at 4.5 percent, but slowing.

If one looks at the demand side break-up of Q1 GDP growth, things look rosy, if you take away government revenue spending.

However, the trends gauged from household earnings or the the ongoing moderation in nominal GDP growth is not being accounted for.

Consumption trends for Indian economy

Household consumption spending (PFCE) is growing at 6 percent, gross fixed capital formation at 8 percent and exports (in real terms) at 12 percent.

Merchandise exports volume are on the decline. Volume growth for consumption-oriented companies is much weaker than trends typically seen with a 6 percent private final consumption expenditure (PFCE) growth.

PFCE is defined as the expenditure incurred by the resident households and non-profit institutions serving households (NPISH) on final consumption of goods and services, whether made within or outside the economic territory.

The Q1 FY24 nominal GDP grew by a mere 8 percent and is likely to stay in single digits for the remaining quarters of FY24. This is not good news for corporate revenue and profit numbers, bank credit and other indicators which are linked to nominal output.

If we compare the data to pre-COVID numbers, India’s economy is actually growing at a 4-year CAGR of 3-3.5 percent which is likely to further improve to 4-4.5 percent by the end of the next financial year.

Not the 7 per cent advertised, but still healthy as compared to global figures.

Consumption demand is the weakest, growing at just 3.6 percent CAGR in the pre-COVID lead-up.

Higher inflation has dented purchasing power of Indian households.

Government revenue expenditure is low, with the bulk going to infra spends.

Investment spending is catching up and exports saw significant growth in FY22 (2-year CAGR of 8.4 percent) and FY23 (3-year CAGR of 10 percent), despite global supply chain slowdowns.

High-frequency activity indicators

These indicators underscore the aspects of Indian growth in the context of the global economy today. As consumer demand from Europe is weaker than the US, and Chinese exports are once again up in competition, exports while growing, will be given a challenge.

With China’s real estate economy slowing, there is an increased investment inflow for construction companies in India.

Real estate launches are rising as current real estate inventory is low, demand pipelines seem to be healthy, and the industry has seen a consolidation over the last decade. Consequently, cement and various other building material accessory companies witness a positive demand trend.

Barring a few sectors such as air travel, leisure, luxury goods, and jewellery, demand is moderate in India/ With government capex in infra increasing, auxiliary effects should be seen with respect to jobs and higher incomes.

Overall, the domestic side of demand is moderate but with potential to improve.


A slowdown in global growth and tighter financial conditions will have an impact on India’s growth story. India’s economy cannot be viewed in global isolation, as the country’s growth dynamics are depended on investment activity and regulations, including those for climate change, which was the crux of the recently-concluded G20 summit in New Delhi.

India can post a strong rebound as its macro fundamentals are strong, once global economic issues settle down.

The economic growth rate remains below potential, compared to the trajectory India can take in terms of output, productivity and per capita income, as a dynamic economy.