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Indian Economy Reports a Slowdown in Third Quarter of 2022

The Indian economy experienced a slowdown in the third quarter (Q3 i.e., October-December) of 2022, recording a growth of 4.4 percent as against a growth of 5.2 percent in the same quarter of last year (October-December 2021),as revealed by the Second Advance Estimates of National Income 2022-23 released by the Government on 28th February 2023. 

This growth of 4.4 percent is the lowest among the three quarters of 2022-23, the first quarter registering a growth of 13.2 percent and second quarter registering a growth of 6.3 percent over the corresponding quarters of the last fiscal. The GDP at constant (2011-12) prices for October-December quarter of 2022 was estimated at ₹40.19 lakh crore as compared to ₹38.51 lakh crore in the third quarter (October-December) of 2021. The slowdown has been attributed to a contraction in the growth of manufacturing sector and private consumption expenditure. The manufacturing sector saw a negative growth of 1.1 percent in Q3 of 2022-23. The private consumption expenditure saw a growth of just 2.1 percent in Q3 of 2022-23 compared to a 10 percent growth in the last years’ corresponding quarter. Since, private consumption forms a major part of the GDP (58.5 percent), its slow growth rate is a matter of concern.

The GDP at constant (2011-12) prices for the year 2022-23 is estimated to be ₹159.71 lakh crore registering a growth of 7 percent, whereas the real GDP for the year 2021-22 is estimated at ₹149.26 lakh crore showing a growth of 9 percent.

It was on lines of the slow growth rate recorded in Q3 of 2022-23, that the former RBI Governor Raghuram Rajan said that India was “dangerously close” to the Hindu rate of growth. This was said on account of a lowered private sector investment, hike in interest rates and the global slowdown. 

What is the Hindu Rate of Growth?

The Hindu rate of growth was a term coined by the late economist Dr Raj Krishna to refer to the low growth rate prevalent during the 1950s to 1980s. It meant that India was content with the slow pace of growth on account the socialist policies and state control on economic activities. 

SBI refutes Rajan's Arguments

The SBI refuted the claims made by Rajan citing them as “ill-conceived, biased and premature”. The SBI in its report ‘Ecowrap’ while dismissing the views, reported stated that the Gross Capital Formation by the Government was at a high of 11.8 percent in 2021-22 compared to 10.7 percent in 2020-21. Overall, the Gross fixed capital formation is estimated to be 34 percent in 2022-23 which is the highest level since 2018-19. This had an encouraging effect on the private sector investment which showed an increase from 10 percent to 10.8 percent over the same period. The gross savings have increased to 30 percent in 2021-22 as compared to 29 percent in 2020-21.  

According to the report by the SBI’S Economic Research Department, the incremental capital output ratio (ICOR) which computes the additional unit of capital required to produce an additional unit of output has been improving. According to the report, “ICOR which was 7.5 percent in 2012 is now only 3.5 percent in 2022, showing that only half of the capital is now needed for the next unit of output.” It means that the capital has become more efficient or more productive. 

In addition, Moody’s Analytics in its report on Emerging Market Outlook predicted that the slowdown is expected to be temporary as India's domestic economy rather than trade was its prime mover of growth. 

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