- As you are aware, the global community is still not safe from the vagaries of the challenges posed ever since the pandemic forced the economic meltdown. When the people finally heaved a sigh of relief after overcoming the challenges of the pandemic-induced economic shocks, the Russia-Ukraine war broke out further debilitating the already fragile economies around the world. Then came the Middle East crisis when Hamas attacked Israel leading to an ill-timed and ill-advised war. Thankfully, the peace overtures from both sides had temporarily brought the situation under some control. Last heard, Israel has resumed its bombardment of the Gaza after a brief lull. Amid the unfolding geopolitical scenario, the Indian economy appears poised to sail through tough times.
PC: Business Recorder
- Pragmatically speaking, Indian leadership alongside the RBI ensured timely fiscal measures were introduced right through the challenging pandemic. Most hearteningly, those measures appear to be bearing fruit looking at India’s GDP growth rate of 7.6% for the July-September quarter released recently. This result must be surprising majorly on the upside, significantly overshooting RBI’s estimate of 6.5%. The highlights of the data are a growth of 13.9% in manufacturing to Rs 7.15 lakh crore, construction increasing by 13% to Rs 3.04 lakh crore, and investment rising 11% to Rs 14.71 lakh crore. However, there’s a trouble spot in the distribution of income as private consumption grew just 3.1% to Rs 23.7 lakh crore.
- Further, the value of shares listed on the stock market touched $4 trillion recently, making India only the fourth country to record this level of valuation. As a percentage of GDP, it exceeded 100%. Market capitalization to GDP ratio is a widely tracked measure of valuation. Of greater relevance here is recent research that identifies the primary reason for the increase in market capitalization after the 1980s. The structural shift in the ratio was influenced mainly by a shift in profit in major economies to companies listed on stock exchanges. The market capitalization GDP ratio, therefore, reflects deep economic transformation. That India’s current market capitalization-GDP ratio is above 100 partly reflects macroeconomic indicators favorably aligned to support growth.
PC: The Economic Times
- Note that corporate tax growth between April and September 2023 was 20%, significantly higher than the 8.6% nominal GDP growth for the same period. Two other factors complement robust tax collections. First, the composition of India’s fiscal allocations is supportive of economic growth at all levels of government. Tactfully, GOI for the last three years has reduced the share of the revenue deficit in the fiscal deficit. It means a greater share of borrowing is going towards investment. Separately, capital expenditure of major states has grown 47% in the first half of 2023-24. Second, favorable macroeconomic factors are being complemented by a change in the composition of household savings, especially investment in mutual funds. Positive outlook all around.
