Oh look, Indian GDP surprised to the high side again. And, oh look, official numbers don’t make much sense again. Official GDP growth outperformed expectations by about 100 basis points in the fourth quarter of fiscal 2024, at 7.8 percent, pushing the annual gain to 8.2 percent. At best, stated growth doesn’t mean what it normally means and at worst numbers were manipulated. India may be the new China, after all.
The extra push in GDP has not come from consumption or investment— the share of both fell. It has come from a smaller trade deficit and, in a very odd way, net government spending. In policy terms, India’s fiscal performance improved. Tax revenue jumped and the budget deficit fell, though at better than 5.5 percent of GDP it is still far too large. Why does the world’s fastest growing major economy need to borrow so much?
At least the policy trend is positive, the data trend is questionable. GDP is outperforming gross value added due to greater tax collection. In aggregate Indian data, greater tax collection boosts economic activity; in most other cases, taxes are inhibiting. Sure enough, consumption in isolation is muddling along at about half the speed of GDP—consumers are not benefiting much from supposedly fast GDP, or don’t see it.
The external side is similar. Weaker imports can legitimately contribute to domestic growth. But they’re also the external measurement of slow consumption, which has long been economy’s foundation at still well over 50 percent of GDP. It could be that India has begun a much-awaited transition from an inward-focused, demand-led economy to a more outward-focused, supply-led economy.
If so, consumption would be outpaced by other components of GDP, a momentous change. It’s far too early to be confident of this but if fast growth is authentic and this structural shift at least possible, the combination should be highly attractive to foreign investors. Yet FDI fell outright in fy24. Long-term foreign funds didn’t buy a sustained fast Indian economy the same way the country’s own consumers didn’t.
There may be a simple numeric reason for skepticism. Nominal GDP growth dropped from 14.2 percent in fy23 to 9.6 percent this year. The deflator—an inflation measure used to adjust nominal GDP—fell from seven percent to 1.4 percent. The latter is dubious: Indian retail inflation was more than three times as fast. There may be a technical justification with reference to wholesale prices but, even if so, price-adjusted GDP is giving a false view of prosperity.
The tie-breaker in Indian economic disputes is job creation. Some job creation requirements put forward are too much to accept—16 million per year! Half that is more reasonable. Indian labor data are very challenging to compile and almost as challenging to believe. The Ministry of Statistics surveys households and claims unemployment is low. The Ministry of Labour surveys companies and finds nothing like the new jobs needed for low employment.
The way to reconcile the two is unpleasant for the Modi government. Individuals are in fact employed, but not at companies. Instead, there are multiple indications that workers are actually returning to agriculture, defying what should be the course of successful development. This has shown up in both the quantity of workers and surprising downward pressure on rural wages in what is claimed to be a booming economy.
India still hasn’t caught up to the GDP trajectory it was on before the pandemic. This is horrible luck, no failure of Modi’s. Yet, in the face of a flood of new labor market entrants, unemployment results say there is no longer a problem. Implausible. Some people want India to be the new China. They probably didn’t mean claims of fast growth and low unemployment clashing with a hefty amount of evidence of an underperforming economy.
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