Government final consumption expenditure tanked 0.2% in Q1, while public capital expenditure spends that include projects financed by the Centre, States and central public sector firms, were 33.3% lower than a year ago. 
| Photo Credit: Getty Images/iStockphoto

Signalling a moderation in the economy’s growth momentum, India’s real GDP rose 6.7% in the April to June 2024 quarter, the slowest in five quarters, and well below the Reserve Bank of India’s expectation of a 7.1% uptick as well as the 7.8% uptick registered in the preceding quarter.

For the first time in a year, growth in the real Gross Value Added (GVA) in the economy outperformed GDP growth, with a 6.8% uptick in the first quarter (Q1) of 2024-25. This is a significant shift from the preceding two quarters, Q3 and Q4 of 2023-24, when real GVA growth lagged GDP growth by 1.8 and 1.5 percentage points, respectively.

The central bank has penned in a GDP growth of 7.2% for this year, and the softer than expected Q1 growth amid easing headline inflation may shift the dynamics for its hawkish monetary policy stance, especially with the U.S. Federal Reserve indicating an interest rate cut next month.

Chief Economic Advisor V. Anantha Nageswaran sought to play down the Q1 blip as “a slight slowdown that was anticipated by most commentators” as the conduct of the general elections had brought down government expenditure, including capital spends.

“So in that sense, the 6.7% [growth] was well within the consensus anticipation. At the same time, there is a better alignment between the demand and supply side of the economy, and many components of the demand side, such as final private final consumption expenditure, gross fixed capital formation and net exports have held up quite well,” he said. The 2% rise in farm sector GVA in Q1 indicates a turnaround from recent quarters’ lows, such as the 0.6% rise in January-March 2024, he noted.

Government final consumption expenditure tanked 0.2% in Q1, while public capital expenditure spends that include projects financed by the Centre, States and central public sector firms, were 33.3% lower than a year ago. Still, gross fixed capital formation grew 7.5%, recovering from a four-quarter low of 6.5% in the previous quarter, and private consumption outgoes seemed to rebound from last year’s weak trends to hit a six-quarter high of 7.4%.

“The major components apart from public sector for capex are households and the private sector. A stagnation in the public sector capex along with a steady capex by the household sector indicates a modest pickup in the private sector capex,” said Paras Jasrai, senior economic analyst at India Ratings and Research.

“This GVA growth in Q1 has been driven by significant growth in the Secondary Sector (8.4%), comprising Construction (10.5%), Electricity, Gas, Water Supply & Other Utility Services (10.4%) and Manufacturing (7%) sectors,” the National Statistical Office said.

On the services side, however, growth in the job-intensive ‘Trade, Hotels, Transport, Communication & Services related to Broadcasting’ segment dropped to 5.7% from 9.7% in the same quarter last year, while ‘Financial, Real Estate and Professional Services’ eased to 7.1% from 12.6% a year ago. Economists attributed some of this to statistical base effects.

Congress president Mallikarjun Kharge. File
| Photo Credit: ANI

Congress president Mallikarjun Kharge on July 12 said that Prime Minister Narendra Modi “used PR” to keep the government away from basic issues but people were now demanding accountability after the June Lok Sabha poll results.

Mr. Kharge took a swipe at the Prime Minister, saying that while he is holding meetings under the shadow of cameras for the upcoming budget, he must pay attention to the basic economic issues of the country.

In a post in Hindi on X, the Congress president said, “Narendra Modi ji, Your government has ruined the lives of crores of people by pushing them into the pit of unemployment, inflation and inequality.” Listing the “failures” of the government, Kharge said that due to the unemployment rate of 9.2 per cent, the future of the youth is staring at naught.

“For people aged 20-24 years, the unemployment rate has risen to 40%, highlighting the serious crisis in the job market among the youth,” Mr. Kharge said.

The promise of doubling the income of farmers and MSP of cost plus 50 per cent has turned out to be false, he said.

Recently, on the MSP of 14 Kharif crops, the Modi government has again proved that it wants to use the MSP recommendation of the Swaminathan report only as an “election gimmick”, he claimed.

The Congress leader said, “3.84 lakh government jobs have been lost in the 7 PSUs in which the majority of government stake has been sold! This has also led to the loss of jobs for SC, ST, OBC, EWS reserved posts”.

He said 1.25 lakh people have lost government jobs in the 20 top PSUs in which the Modi government has sold a small stake since 2016.

Manufacturing as a percentage of GDP has fallen from 16.5 per cent during the UPA regime to 14.5 per cent during the Modi government, he pointed out.

“Private investment has also fallen drastically in the last 10 years. New private investment plans, which are an important part of GDP, fell to a 20-year low of only ₹44,300 crore between April and June. Last year, private investment of ₹7.9 lakh crore was made during this period,” he said.

Mr. Kharge also alleged that the havoc of inflation is at its peak.

The prices of flour, pulses, rice, milk, sugar, potatoes, tomatoes, onions, and all essential food items are skyrocketing, he noted.

The result is that the household savings of families are at the lowest level in 50 years, he added.

Mr. Kharge said that economic inequality is the highest in 100 years, while wage growth in rural India is negative.

“Unemployment has increased significantly in rural areas and it has now increased from 6.3% in May to 9.3%. The average number of days of workers employed in MNREGA has decreased,” he said.

“Modi ji, It has been 10 years, you used your PR to keep the government away from the basic issues of the people, but after June 2024, this will not work anymore, the public is now demanding accountability,” Mr. Kharge said.

The arbitrary tampering with the country’s economy must now stop, he added.

Solar panels in the Pavagada Solar Park, Karnataka.
| Photo Credit: Getty Images

Modern economic growth and rising demand for goods at relatively lower prices have led to inevitable exploitation of nature, and consequent climate change. There is no denying that unfettered capitalism has contributed to over extraction of natural resources and increasing emission of greenhouse gases. Should uncontrolled capitalism persist till 2050, the aim of restricting average global temperature within 1.5 °C above pre-industrial levels may remain a pipe dream. Emitting billions of tonnes of carbon dioxide will see continued climate extremes leading to the loss of lives and livelihoods. No wonder, climate emergencies have become frequent.

Many environmentalists believe that the long-term solution to tackling climate crises is to uproot capitalism because “we cannot solve the problem by what caused it”. But with time short for averting catastrophic climate change, the possibility of putting a new economic system in place may seem improbable.

Transform, progress

In Climate Capitalism, Akshat Rathi explores how to transform the world’s dominant economic system while ensuring that the wheels of progress don’t come to a halt. From renewable power to green cement, electric cars to carbon capture, emission-reducing technologies have tossed new opportunities for private capital and government regulations to work in tandem. The process to harness the forces of capitalism to achieve zero emissions has already begun. Although these are still early days for capitalism to wear a natural look for addressing impending climatic concerns, a faint ray of optimism seems to have been generated.

It has been over two decades that industrial capitalism has been critiqued for neither pricing nor accounting its negative externalities. It liquidates natural capital and calls it profit, undervaluing both natural resources and living systems. Rathi chronicles the political manoeuvrings that made possible China’s lead in building fleets of electric cars, India’s success in promoting solar power, America’s success with reversing climate damages in the oil industry, and the Danish quest for pushing wind turbines. All such initiatives combined, it has been estimated that 2% of global GDP is enough to make the carbon dioxide problem go away. Far from being linear, however, there are disruptive elements that play upon power politics to sully the path to zero emissions. Politics, technology and finance must align in the right direction to bring about change, says Rathi.

To work as a unit

With climate emergencies threatening life, public perception on the global climatic accords and green initiatives remains grossly sceptical. Holding an optimist position, Rathi argues that we cannot insulate ourselves from the transformation coming our way. From bureaucrats to billionaires, doers to enforcers, there are multiple actors on the capitalist platform who would need to bridge differences to reform the economic system and help shape a climate-conducive capitalism.

Passionate capitalists fear that policy reforms may kill the market. But policy shifts in favour of climate-oriented technologies and investments have created new business opportunities. Whether such efforts add up to make an impact at global scale is yet to be fully ascertained. Some trends are noticeable, the U.K. economy grew by 60% between 1990 and 2017 while its carbon emissions declined by 40%. The task lies in replicating and escalating such transformative processes and practices. Although climate financing may have been slow, the Paris Agreement has triggered a process of change.

Climate Capitalism conveys an optimistic narrative which contends that it’s cheaper to save the world than destroy it. What kindles a ray of hope is that capitalists themselves have woken up to both the cost of inaction and the opportunity of action.

Climate Capitalism

Akshat Rathi

John Murray/ Hachette

₹699

The reviewer is an independent writer, researcher and academic.

Finance Ministry exuded confidence that the country will achieve 6.5% growth in FY24 on the back of improved corporate profitability, private capital formation and bank credit growth, notwithstanding the risks of rising crude oil prices and monsoon deficit.

The Finance Ministry on September 22 exuded confidence that the country will achieve 6.5% growth in FY24 on the back of improved corporate profitability, private capital formation and bank credit growth, notwithstanding the risks of rising crude oil prices and monsoon deficit.

The ministry’s August edition of Monthly Economic Review said the 7.8% growth recorded in the first quarter (April-June) was on account of strong domestic demand, consumption and investment. The growth was also witnessed in various high-frequency indicators.

Flagging certain risks like steadily climbing crude oil prices in the global market, impact of monsoon deficit in August on Kharif and Rabi crops, the review said, “that needs to be assessed.” At the same time, it observed, the rains in September have erased a portion of the rainfall deficit at the end of August.

Furthermore, the review said, a stock market correction, in the wake of an overdue global stock market correction, is an ever present risk, and offsetting these risks are the bright spots of corporate profitability, private sector capital formation, bank credit growth and activity in the construction sector.

“In sum, we remain comfortable with our 6.5% real GDP growth estimate for FY24 with symmetric risks,” it said.

Observing that the strength of domestic investment is the result of the government’s continued emphasis on capital expenditure, the report said, measures implemented by the central government have also incentivised states to increase their capex spending.

The external demand has further complemented the domestic growth stimulus, it said, adding, the contribution of net exports to GDP growth has increased in Q1FY24, as services exports have performed well.

High Frequency Indicators (HFIs) for July/August 2023 reflect sustenance of growth momentum in Q2FY24, it said.

With regard to the banking sector, it said, a variety of indicators suggest increasing resilience of the sector through declining Non-Performing Assets (NPA), improving Capital to Risk-weighted Asset Ratio (CRAR), rising Return on Assets (RoA) and Return on Equity (RoE) as of March 2023.

Similarly, as of March 2023, data for Non-Banking Finance Companies (NBFCs) indicated improvements in their profitability and risk-taking behaviour, it said.

Further, it said, as per the July 2023 estimates by the RBI, there has been a consistent and broad-based growth in the non-food bank credit of Scheduled Commercial Banks (SCBs) since April 2022.

On retail inflation, the report said, it decreased in August, with both core inflation and food inflation easing from the July figure.

The calibrated measures taken by the government, including adjustments in the duties of many critical inputs and monetary policy tightening, helped reduce core inflation to a 40-month low level. Globally, food inflation remains high in many major economies, it said.

In India, it said, consumer food price inflation eased to 9.9 per cent in August due to the government intervention with targeted measures for specific crops, including build-up of buffer, procurement from producing centres and subsidised distribution.