There is bad news all around for the Indian economy, what with the disastrous Adani saga, widespread fears of the US and European economies slipping into a recession, and the continuing Russia-Ukraine conflict. The country’s growth rate is on the downslide. As per government data, the country’s GDP growth rate for Q3FY2023 ended December 2022 dropped to below 5 per cent — 4.4 per cent, to be exact. This is a significant drop from the 6.3 per cent GDP growth in Q2FY2023 ended September 2022.

The December quarter growth data released by the Ministry of Statistics and Programme Implementation is lower than even the estimates shared by economists. The official statement reveals that GDP in Q3FY2023 is estimated at Rs 40.19 lakh crore, as against Rs 38.51 lakh crore in fiscal 2022, indicating a growth rate of 4.4 per cent.

This slower growth rate could raise concerns over the growth trajectory going forward, as the domestic economic situation is vitiated by the Adani debacle and the global economic climate continues to remain tense.

The sharp fall in the GDP growth rate is attributed primarily to high inflation which dampened consumption on the one hand, and on the other hand prompted the Reserve Bank of India to follow a dear money policy and resort to hiking key interest rates multiple times since May 2022. As a result, private consumption growth dropped from 20 per cent in Q1FY2023 to 8.8 per cent in the second quarter and further to 2.1 per cent in Q3. Private investment growth also declined from 20.6 per cent in Q1 to 9.7 per cent in Q2, and further to 8.2 per cent in Q3.

Unfortunately, the GDP growth in the last quarter of fiscal 2023 (January to March 2023) could further slow down if a poll of economists conducted by Reuters is any indication. As per the median forecast of 42 economists, the GDP growth in Q4FY2023 could be slightly less than the 4.4 per cent achieved in Q3FY2023. This may be due to the fact that the inflationary price spiral persists in India and is worsening in western countries, which have started reducing their imports from India. This may lead to around 6 per cent growth in fiscal 2023 as compared to the government estimate of around 7 per cent and the RBI’s prediction of 6.8 per cent. After all, the RBI has hiked key interest rates by 250 basis points this year, and this would have certainly flared up the inflation rate and weakened consumption demand.

Unfortunately, the government is preoccupied with issues like the Adani disaster, the forthcoming general elections and fears of recession in the US and European economies. In these circumstances, the government may not be able to take remedial measures to reverse the downward growth trend. The need of the hour is to improve the supply side and boost consumption – both public and private. Unless consumption grows, the pace of growth cannot improve. The country has not totally come out of the adverse impact of the Covid-19 pandemic with millions losing jobs and leading to a sharp drop in people’s incomes. The easier way out is for the government to pump-prime the economy to augment the people’s income. If consumption starts picking up, it will open the path for the GDP to go north. Will the government pay attention to this fact at a time when the general elections are around the corner?