Chapter III: Demand and Output

Overview of Economic Activity

• Domestic economic activity remained resilient in H2:2023-24.

• Investment Demand: Increased significantly, underpinned by government infrastructure initiatives.

• Manufacturing Activity: Further strengthened, often supported by lower commodity prices and improved infrastructure.

• Consumer and Business Optimism: Remains high despite challenges such as geopolitical tensions and volatility in global commodity prices.

• Economic Risks: Risks from rising geoeconomic fragmentation and disruptions in the Red Sea area.

Performance Indicators

• Real GDP Growth: Recorded strong growth of 7.6% year-on-year in 2023-24, with Q3 showing 8.4% growth, marking the third sequential quarter of growth above 8%.

• Real GVA Growth: Grew 6.9% year-on-year in 2023-24, signaling robust production capabilities.

Aggregate Demand Insights

Q3:2023-24 Performance

• Aggregate demand conditions showed buoyancy with strong momentum, particularly in Q3.

• Key Components of GDP Growth:

  • Private Final Consumption Expenditure (PFCE): 3.5% growth in Q3, contributing significantly to overall GDP increase.

  • Government Final Consumption Expenditure (GFCE): Maintained a responsible rate with minor growth.

  • Gross Fixed Capital Formation (GFCF): Surged, indicating increased investment spending.

• External Factors: Greater exports and moderated import growth lessened the negative drag on aggregate demand.

Contributions to GDP Growth

• Weighted Contributions to GDP from different sectors have been notable:

  • PFCE contributed positively despite a year-on-year moderation from 6.8% in 2022-23 to 3.0% in 2023-24.

  • Significant contributions noted from GFCF due to higher investments across sectors.

Comparison of Projected vs Actual GDP Outcomes

• October 2023 Projections: Anticipated GDP growth rates were 6.5% for Q2:2023-24, 6% for Q3, and 5.7% for Q4.

• Actual Outcomes: Much higher growth rates noted at 8.1% for Q2 and 8.4% for Q3, driven by robust performances in GFCF and reduced negative impact from net exports.

Consumer Spending Trends

Private Final Consumption Expenditure (PFCE)

• PFCE improved to 3.5% in Q3, aided by urban consumption and rising income levels in informal sectors.

• Annual Growth: Overall PFCE growth moderated to 3.0%, down from 6.8% in 2022-23, reflecting sensitivities to financial conditions.

Urban vs Rural Demand

• Urban demand indicators such as domestic air traffic and vehicle sales saw notable growth in H2:2023-24 while rural demand observed slower recovery.

• Certain non-durables showed moderate growth but faced contraction recently in January 2024.

• Rural demand gradually picked up, but various indicators reveal it still lags behind urban demand.

Assessment of Employment and Labour Market

• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): Work demand declined, indicating improvements in non-farm employment opportunities.

• Labour Market Statistics: Improvements in labour force participation rate (LFPR) and decreased unemployment rates recorded in 2023, signaling a strengthening economic environment.

  • LFPR reached 59.8% (from 56.1% last year) while unemployment dropped to 3.1% (from 3.6%).

  • Net payroll additions under the Employees’ Provident Fund Organisation (EPFO) grew significantly, by 12.5% year-on-year in Q3 and 35.4% in January 2024.