Primer | What’s driving Indian GDP surge: Public spending or private consumption
The general take on India’s rapid economic growth is that it’s powered by the government’s capex push. But a recent report questions this narrative, saying it underestimates the role of consumption. Mint unpacks the investment versus consumption debate.
India is the fastest growing large economy in the world. In FY2022- 23, its gross domestic product or GDP grew by 7%. However, in the just-concluded fiscal year 2023-24, its economy has been expanding at an even faster pace.
In the first three quarters it expanded at a pace of 8.2%, 8.1% and 8.4% respectively. The government estimates the full year’s growth at 7.6%. In comparison, other major economies are projected to grow at a much slower clip.
According to the International Monetary Fund, China is expected to grow at 4.6%, the US at 2.1, France at 1%, Japan at 0.9% and UK at 0.6%. With three of the four engines of economic growth—public consumption, exports and private investment—subdued, it is public investment, specially spending on infrastructure, that has been powering India’s growth. The Centre has been spending a lot on capex in a bid to pump-prime the economy and revive private investment.
Its budgeted capex has doubled from 1.7% of GDP in FY19 to 3.4% in FY25. States have also been incentivized to spend more on capex. This massive spending, experts say, has caused GDP growth to accelerate.
Private investment, they say, is also showing signs of revival. No. In a recent report, HSBC, the global financial services major, argues that India’s strong GDP growth is not powered by public investment—that is the massive capex spend.
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