Downward trend in both demand and investment

In a decadal comparison, the trend in PFCE remains unchanged – a slowdown in its growth and GDP share. PFCE’s average growth is 5.9% in the current decade of FY15-FY24 – against 6.1% in the previous decade of FY05-FY14 – and its GDP share averages 56.8% now against 56.9% earlier (the 2011-12 series, constant prices).

But if the 2004-05 series (constant prices) data is considered for the previous decade, the PFCE’s growth and GDP share were far higher at 7.4% and 63.9%, respectively. This means, the 2011-12 series data doesn’t support the RBI’s claim but the 2004-05 series data (which the RBI doesn’t mention) does.

In the shorter time span, the PFCE’s GDP share of 56.8% in the pre-pandemic FY20 is almost the same as 56.9% in FY24 (AE1) but the interim years saw a secular surge in the PFCE from 57.2% in FY21 to 58.3% in FY22 and to 58.5% in FY23. This means demand in the economy is still affected by the prolonged K-shaped growth and (post-pandemic) recovery. There is plenty of corroborative evidence of this:

· Household financial assets have fallen to a 47-year low of 5.1% of the GDP in FY23, while their debts have risen to 5.8% of the GDP in FY23 – only twice in 53 years it went above 5%, in FY06 (5.1%) and FY07 (6.6%).

· ITRs declaring taxable income have fallen 54% in seven years between FY16 and FY23.

· Tax burdens shift from the rich (corporate tax cut, manufacturing incentives like PLIs and DLIs, cut in GST on luxury items etc.) to the poor through indirect taxes (elevated oil taxes when crude price is low for years, 5% GST on food items consumed by the poor). As a result, in the past five fiscals (FY19-FY23), income tax collection has risen by 76% but corporate tax by only 24.5% and direct tax buoyancy has fallen to 1.18 in FY23 from 2.52 in FY22 (IT data released on January 23, 2024).

· “Free” ration is being given to 67% of households and India’s rank slips in the Global Hunger Index – from 80 in 2015 (of 104 countries) to 111th in 2023 (of 125 countries).

· Low-paying informal agriculture employs 48.9% of total workers and 18.3% of the total workforce are unpaid or “helper in household enterprise” (PLFS 2022-23).

· 55 million rural households were engaged in low-paying (below statutory minimum wages) menial MGNREGS jobs until January 20, 2024 (FY24). Going by the 2011 Census data of households, they constitute 33% of total rural households.

· 'Real’ rural wages contracted in 21 of 23 months up to October 2023 (reflecting rural distress where 70% population reside). This contraction (negative growth) follows a deceleration since 2014.

· Loss of jobs in major IT companies (20,000 sacked from 85 firms in January 2024 alone) and start-ups.

· Thousands of youths are lining up in Uttar Pradesh, after Haryana, for construction jobs in Israel – undeterred by the war and the Indian government’s refusal to provide any protection or security to those aspirants despairing for work. Meanwhile, engineers, and postgraduates in maths and anthropology have joined the Delhi Zoo as keepers.

2004-05 GDP series

Decadal growth II: What will drive higher growth?