INDIA'S GROWTH TRAJECTORY

• The National Statistical Office (NSO) has used the income approach to calculate GDP, which sums up all national incomes from the factors of production and accounts for other elements such as taxes, depreciation, and net foreign factor income.
• The expenditure approach, which dictates headline growth to be 4.5% rather than 7.8%, would lead to a large discrepancy.
• Another essential statistical operation is adjusting inflation using the price deflator.
• Typically, the deflator is meant to adjust growth figures when they are overstated by inflation.
• In this case, deflation due to falling commodity prices, reflected in the wholesale price index, has worked to overstate the real growth.
• Furthermore, there is a base effect from the COVID-19 degrowth period, which continues to plague India’s growth figures.
• Although less pronounced in FY24, the base effect has a role in comparative statistics due to sporadic growth in the years following FY20-21.
• Whether the proposed, supposedly cooled, inflation rate calculated through the consumer price index can be sustained at current levels with the impending depreciation of the Indian rupee against the dollar due to capital outflow pressures resulting from the RBI’s reluctance to raise interest rates.
• India is a net importer and its most significant import consists of crude petroleum, whose price seems to be rising due to Saudi’s $100 per barrel push and rupee depreciation.
• The domestic consumption of diesel, a proxy for economic activity in India, fell by 3% in August, which, if sustained, does not paint a rosy growth picture for the coming quarters.

4. Revenue from Taxes

• The government's tax revenue from direct taxes is weakening, while indirect tax revenue remains strong.
• This indicates a K-shaped pattern, where the wealthy are not paying as much in taxes as they should be, while the poor and middle class are paying more.
• The direct and personal taxes should have grown closer to the nominal growth rate, but they have not.
• This suggests that the government is not collecting as much tax revenue as it could be.
• The narrowing of revenue streams will lead to forced austerity measures, as the government tries to control the budget deficit and interest rates.
• This will make it difficult for the government to spend money on things like infrastructure and social programs, which could lead to slower economic growth in the future.

4.1. K-shaped recovery

• A K-shaped recovery is a type of economic recovery in which different sectors of the economy recover at different rates, or even in opposite directions.
• This can lead to a widening gap between the rich and the poor, as the sectors that recover more quickly tend to be those that employ higher-income workers.
• One example of a K-shaped recovery is the recovery from the COVID-19 pandemic.
• Some sectors, such as technology and e-commerce, have thrived during the pandemic, while others, such as hospitality and tourism, have been hit hard.
• This has led to a significant increase in income inequality in many countries.

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• Taking a nuanced approach to the matter, it is evident that the reported growth narrative for India's Q1 FY24 warrants a closer examination.
• The divergence in growth figures stemming from the income and expenditure approaches presents a significant disparity, casting doubt on the reliability of the optimistic narrative being conveyed.
• Furthermore, the foundation of this growth story, influenced by adjustments for inflation and marked fluctuations in tax revenue streams, suggests a more cautious path.
• Moreover, the cautious outlook for the agriculture sector and the potential fiscal constraints introduce a layer of restraint to the economic picture, somewhat different from the initial portrayal.
• In light of these considerations, it is prudent to assert that while India's economic performance does display signs of resilience, it does not fully align with the unequivocal success story initially portrayed.
• This situation underscores the need for a more nuanced and critical approach when assessing the trajectory that lies ahead.