CARE Ratings detailed analysis of India’s GDP growth and composition for the period 2011-20
16 January 2020
Although the real CAGR growth in the Indian economy during FY12 to FY16 and FY17 to FY20 have been at the same level, the drivers of this growth has undergone a change. In recent years, higher government spending has supported the economy when the other components of the GDP have witnessed a slowdown.
On account of higher government expenditure in the past 3 years, the government finances have remained constrained with the government not able to reduce the fiscal deficit (as a % of GDP) and has maintained it in the range of 3.3%-3.5%. The government had been able to reduce this ratio from 5.9% in FY12 to 3.5% in FY17. However given that the government has still managed not to increase the deficit ratio is indicative of fiscal management brought about by increases in revenue and rollover/cuts in expenditure. There has been commitment shown to fiscal prudence.
The investment rate in the economy has reduced significantly from 34.3% in FY12 to 28.1% as per FY20 (AE) and this decline can be attributed to excess capacity and build-up of NPAs in several sectors. However, the real CAGR growth of investment has been higher at 7.1% during FY17 to FY20 as against 3.9% real CAGR in FY12-FY16.
The decline in nominal GDP growth from FY12 to FY20 has been on account of slowing lower inflation.
In case of sect oral composition, there has been a decline in the average share of agriculture and construction during FY17-FY20 as against FY12-FY16. On the other hand, the average shares of all 3 services components have increased during FY17-FY20 from the previous period.
India’s per capita income has more than doubled in FY20 from that of FY12 levels. On the other hand, the growth rate in per capita income has declined over the years indicating lower spending power.