India’s economy showed signs of recovery in the first quarter of this year, with the country’s real gross domestic product (GDP) growing by 6.1 percent year on year (YoY), as reported in the June edition of the ‘India Economic Monitor’ by the Boston Consulting Group (BCG). This growth was primarily driven by a rebound in the manufacturing sector, which had contracted in the previous two quarters.
According to BCG, various high-frequency indicators witnessed improvement in May, reflecting robust demand. However, growth rates varied across different sectors. The index of industrial production (IIP), for instance, experienced a decline in April, partly due to a weaker performance in manufacturing. On the other hand, the purchasing managers’ index (PMI) for manufacturing reached its highest level since October 2020 in May, indicating an upturn in the sector.
Trends in investment indicators were mixed, with both positive and negative signals. In May, India’s merchandise trade deficit reached a five-month high, characterized by sluggish export growth. Conversely, foreign direct investment (FDI) saw a surge in April, although it remained below levels observed in the same month last year.
Looking ahead, BCG highlighted analysts’ forecasts, which project a YoY GDP growth rate in the range of 5.5 to 6.5 percent for fiscal year 2023-24.
India’s economic recovery comes as a positive sign for the country, as it strives to overcome the challenges posed by the COVID-19 pandemic. The rebound in manufacturing indicates a revival in production activities, which can contribute to job creation and overall economic growth.
However, it is important to note that uncertainties and risks still persist. The pandemic continues to generate volatility in the global economy, and any potential disruptions in supply chains or changes in consumer behaviour could impact India’s economic trajectory.
The Indian government and policymakers will need to maintain a cautious approach and implement measures to sustain economic growth. This may include further investment in key sectors, promoting exports, attracting foreign investment, and ensuring the availability of adequate fiscal support to stimulate demand and employment.
Overall, while India’s Q1 GDP growth and the improvement in high-frequency indicators are positive developments, sustained efforts and proactive measures will be crucial to ensure a robust and inclusive recovery in the coming months.
