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India’s surprisingly fast GDP growth and the ongoing surge in Sensex

  • Category
    Economy
  • Published
    24th Dec, 2023

Context

According to a study, India Inc. corporate performance as well as the boost to private capital formation has been quite uneven — almost in line with the K-shaped consumption recovery.

So, let us understand the K-shaped recovery and details.

Key Highlights of the Study

  • Surprising Growth in Q2: Contrary to expectations, Q2 2023 witnessed a robust 7.6% GDP growth, primarily fuelled by a remarkable 14% expansion in the manufacturing sector.
  • Stock Market Rally and Political Wins: The GDP surge coincided with BJP's electoral victories, igniting a rally in Indian stock markets. Foreign investors showed renewed interest while retail investors reached historic highs.
  • Consumption Struggles Amid Urban-Rural Divide: Despite positive economic indicators, data reveals a persistent struggle in average Indian consumption levels, with a noticeable urban-rural gap.
  • Unravelling the GDP Surge: Analysts question the triggers behind the unexpected GDP growth, exploring whether it marks the end of the economic slowdown or signals a new growth phase.
  • K-Shaped Industrial and Consumption Recovery:
    • India's recovery exhibits a K-shaped pattern, with disparities in consumption and industry performance. While some sectors thrive, others face challenges.
    • India's consumption recovery follows a K-shaped trajectory, accentuated by an urban-rural divide and a shift toward premium products.

What is K-shaped recovery?

  • The “K-shaped” economic recovery is characterised by a stark split in the recovery pace of the economy— some sectors are bouncing back ahead of the rest at a much faster pace, while others are continuing a downward trajectory.
  • K-shaped recovery occurs if different sectors recover at different rates.

  • Manufacturing Output Surge: The surge in Q2's manufacturing output is dissected, revealing a 14% growth in gross value added (GVA). Company profits soar despite modest net sales growth.
  • Impact on Sensex and Stock Prices: The rise in company profits resonates in stock markets, enticing investors. This, coupled with falling input prices, contributes to the surge in stock prices.
  • Investment Trends and Private Sector Participation: Examining investment patterns, some sectors benefit from the government's capital expenditure push, potentially signalingprivate sector resurgence.
  • Uneven Capacity Expansion: While profits surge, the study indicates uneven growth in capacity utilization across sectors. Industries linked to premium consumption and government capex outperform.

Impact of India's Economic Recovery-

Stock Market Boost:

  • The robust economic recovery reflected in GDP growth has energized stock markets, attracting domestic and foreign investors.
  • Increased market participation could stimulate capital inflow, fostering economic stability and expansion.

Political Implications:

  • The economic upturn coinciding with political wins may bolster the ruling party's image.
  • Positive economic indicators may enhance public perception, potentially influencing political landscapes.

Urban-Rural Disparity:

  • The K-shaped recovery accentuates the gap between urban and rural consumption
  • Addressing this divide becomes crucial to ensure inclusive growth and social stability.

Manufacturing Sector Surge:              

  • A significant surge in manufacturing output contributes to overall GDP growth.
  • Strengthening the manufacturing sector can lead to job creation and increased export

Uneven Investment Patterns:

  • Sectors benefiting from government capex witness growth, while others lag.
  • Addressing imbalances in private sector participation becomes essential for a more uniform and sustained recovery.

Capacity Utilization Dynamics:

  • Varied capacity utilization levels across sectors indicate a nuanced recovery.
  • Tailoring policies to support sectors with lower capacity utilization could optimize overall economic performance.

Private Sector Resurgence:

  • Signs of private sector resurgence align with government objectives.
  • Encouraging private investment can amplify the economic recovery, creating a more sustainable growth trajectory.

Verifying, please be patient.

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