India's GDP growth reaches 8.2% in FY 2023-24, exceeding the 7.8% estimate, propelled by strong manufacturing, construction, and public investment in infrastructure. (Representational Image/AA File Image)

India’s economy has achieved better than expected growth in the financial year 2023-24, largely on the basis of the robust growth in manufacturing and construction sectors. The consensus estimate for the GDP growth was 7.8 per cent, while the real growth was 8.2 per cent. The growth was also partly helped by robust corporate profits, with industry outpacing services. The bullishness in stock markets, which are at their peaks, also hints at India’s growth story. 

A large portion of the economic growth, however, comes mainly from the government’s public investment in infrastructure. Private investment, though it has picked up, has not reached a level where the government can reduce public investment.  Experts, however, believe that private investment will pick up after the new government is formed at the Centre. 

Despite a robust growth rate, data suggests a wide gap between higher investments and lower consumption in the financial year 2023-24. As the private sector investment picks up going forward, the government needs to focus on reviving consumer demand by addressing issues that stem the growth in consumption. Unless this issue was addressed, there cannot be sustainable investment by the private sector in capacity expansion.

Another time bomb that is ticking is people’s debt levels. In the light of easy loans, the government should study the drivers of private consumption. If a significant percentage of consumption comes from loans, a higher debt level could create a bubble. If and when it bursts, it will have several adverse impacts. It will hit overall consumption, reduce corporate profitability, lead to stress in the job market and also pull down economic growth. 

The government should be mindful of the fact that the higher growth in the economy during financial year 2023-24 was achieved in the wake of lower base in the last fiscal. Therefore, it is likely that the current fiscal may not see a similar growth rate, and the government and private sector must work harder and implement next generation reforms by focusing on people’s skill development and employability.