Private Consumption's Share In Indian GDP Down To 55% In Q4FY23

As global economies brace for a slowdown, the share of private consumption in India's gross domestic product (GDP) declined from 61.6 per cent in Q3 of FY23 to 55 per cent in Q4 of FY23, according to a report by the Union Finance Ministry.

The annual economic review report stated that the decline is partly because capital formation growth spurted in the fourth quarter.

On an annual basis, private consumption as a proportion of GDP (at constant prices) for FY23 reached the highest in 17 years, and the gross fixed capital formation (GFCF) recorded the highest proportion of GDP in 10 years.

Interestingly, the report also mentioned, "On its own, privation consumption is showing strong enough growth, as evidenced by several high-frequency indicators. Some of these high-frequency indicators (HFIs) include personal loan growth, which continues to be impressive, notwithstanding the environment of higher interest rates."

Increased spending by credit cards in Q4 of FY23 can be attributed to a surge in e-commerce and point-of-sale transactions."

The outlook for consumption growth remains positive, with the Current Situation Index and Future Expectations Index of the RBI undergoing substantial improvement. 

The outlook for consumption growth remains positive, with the current situation index and future expectations index of the RBI undergoing substantial improvement. The report also stated that gross fixed capital formation (GFCF) has been a major growth driver in Q4 of FY23, with its share in GDP at a 10-year high of 35.3 per cent. 

"This has been propelled by the crowding-in of private sector investment by a significant ramp-up in public sector investment over the years," according to the report.

The share of total exports in GDP moderated to 22.8 per cent in Q4 of FY23, compared to 24.4 per cent in Q1 of FY23, as synchronised monetary tightening by major economies led to a decline in consumer spending in advanced nations and moderation in international trade.

Talking about the performance of GDP growth in Q4FY23, the report added that it was broad-based and addressed all concerns about the recovery of consumption and investment demand to the pre-pandemic growth trajectory. 

Enabled by the release of pent-up demand, real private final consumption expenditure (PFCE) has surpassed the pre-pandemic trend trajectory. Similarly, a large step up in public sector capex over the last three years and a favourable credit situation in the country have contributed to real GFCF also surpassing the pre-pandemic trend trajectory

Rumki Majumdar, Economist, Deloitte India said that as the economies on the two sides of the Atlantic experience tighter labour markets and high inflation, cost-cutting measures by global MNCs will compel them to consider destinations like India where the global in-house centres (GICs) are quickly becoming an attractive proposition and increase the demand for services from India. 

"We are not only becoming an integral part of the value chain in global services delivery but with the participation of the GICs, we are also moving up the value chain," she added.