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Indian Economic Growth Story: Top Factors Leading to India’s GDP Expansion in FY22/23

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Table of Contents

1. Robust Domestic Demand

2. Strong Investment Activity in Infrastructure

3. Buoyant Private Consumption

4. Lower Government Consumption and Fiscal Consolidation

5. Increase in Revenues

6. Inclusive Growth and Job Creation


India, one of the fastest-growing economies globally, is charting a course toward high middle-income status by 2047, the centenary of its independence. In FY22/23, India’s real GDP expanded at an estimated 6.9 percent. This Indian economic growth rate indicates a significant rebound from the contraction experienced in FY20/21 due to the COVID-19 pandemic.

The expansion reflects the resilience of the Indian economy, supported by accommodative monetary and fiscal policies, wide vaccine coverage, and strong domestic demand. Know about some of the top factors that lead to Indian economic growth and the expansion of India’s GDP in the fiscal year 2022 – 23.

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1. Robust Domestic Demand

The cornerstone of the Indian economic growth has been its robust domestic demand, constituting around 55-60% of the overall economy. The focus on domestic consumption, especially in a world facing disruptions in supply lines and tightening global monetary policies, has allowed India to weather challenges and emerge as one of the fastest-growing economies.

Despite global challenges such as the COVID-19 pandemic and geopolitical conflicts, the country has experienced a rebound in private consumption and capital formation. Private consumption, accounting for 58.4 percent of GDP in Q2 of Indian economy 2023, has played a pivotal role in driving Indian economic growth. The government’s successful vaccination drive, covering over 2 billion doses, has instilled confidence, leading to increased consumer spending on contact-intensive services and a significant decline in urban unemployment rates.

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2. Strong Investment Activity in Infrastructure

A key driver of India economic growth and GDP expansion is the strong investment activity, particularly in infrastructure. Government initiatives aimed at boosting investment in infrastructure played a pivotal role in driving strong investment activity. The commitment to increasing capital spending, particularly in areas like roads and railways, not only spurred Indian economic growth but also enhanced competitiveness.

The Central Government’s Capital Expenditure (CAPEX) increased by a remarkable 63.4 percent in the first eight months of FY23. This surge in government spending has not only bolstered Indian economic growth but also acted as a catalyst for private sector investment. Initiatives like PM GatiShakti, the National Logistics Policy, and Production-Linked Incentive schemes have further contributed to the growth of manufacturing output, emphasizing the government’s commitment to building a robust infrastructure.

3. Buoyant Private Consumption

Private consumption, particularly among higher income earners, has been buoyant, standing at 58.4 percent of GDP in Q2 of FY23. This Indian economy 2023 trend reflects the resilience of the Indian consumer, even in the face of global challenges, and underscores the importance of sustained purchasing power.

The rebound in contact-intensive services such as trade, hotels, and transport has been a significant contributor to the Indian economic growth. The success of the vaccination drive has played a crucial role in boosting consumer sentiments, underlining the connection between public health and economic recovery.

Looking ahead to the fiscal year 2023-24, the Economic Survey projects a baseline growth of 6.5 percent in GDP real terms. The optimistic outlook in India’s economy is supported by factors such as a vigorous credit disbursal, a strengthening balance sheet of corporate, and the unfolding of a new private sector capital formation cycle. The government’s emphasis on structural reforms and initiatives like PM GatiShakti is expected to contribute to sustained Indian economic growth.

4. Lower Government Consumption and Fiscal Consolidation

A notable shift in the composition of domestic demand was the lower government consumption due to fiscal consolidation. The government’s commitment to prudent fiscal policies, including a gradual withdrawal of pandemic-related stimulus measures, contributed to a changing economic landscape.

In a strategic move towards fiscal consolidation, there has been a reduction in government consumption. Despite the challenges posed by the pandemic, the government’s focus on maintaining fiscal discipline has resulted in a shift in the composition of domestic demand. According to Indian economy news, this redirection has played a role in shaping a more sustainable economic trajectory.

5. Increase in Revenues, Leading to Higher Indian Economic Growth

India’s economic buoyancy was further supported by an increase in revenues. The government’s fiscal discipline, coupled with growth-oriented reforms, created an environment conducive to revenue generation. This, in turn, facilitated continued investment in key sectors, propelling overall Indian economic growth.

Credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has been exceptionally high, exceeding 30.5 percent on average during Jan-Nov 2022. The success of schemes like the Emergency Credit Linked Guarantee Scheme (ECLGS) has supported the recovery of MSMEs, evident in rising Goods and Services Tax (GST) payments.

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6. Inclusive Growth and Job Creation

The inclusive Indian economic growth narrative is reinforced by the government’s initiatives such as the Emergency Credit Line Guarantee Scheme, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), PM-KISAN, and PM Garib Kalyan Anna Yojana.

These programs have not only shielded businesses and individuals from financial distress but have also contributed to job creation, ensuring that Indian economic growth benefits all segments of society. In alignment with its goal of achieving net-zero emissions by 2070, India aims to foster green, resilient, and inclusive development.

This journey, however, is not without challenges. While India and economy of the country have made remarkable strides in reducing extreme poverty, challenges like income inequality, child malnutrition, and gender disparity in the workforce persist. To navigate the challenges of technological advancements impacting employment, India needs strategic policies that balance growth-expansion effects with employment preservation. Redetermination of fiscal norms and absorbing external shocks are essential components of Indian economic growth strategy.

However, India’s economic resilience shines against the backdrop of global challenges, including COVID-19 disruptions, the Russian-Ukraine conflict, and central banks’ synchronized policy rate hikes. While global growth is projected to slow, India’s ability to withstand these challenges stems from its well-managed macroeconomic policies, financial strength, and effective response to external imbalances in the in the national economy of India.

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The country stands at the cusp of transformative Indian economic growth, leveraging its demographic dividend, embracing innovation, and committing to sustainable practices. As the world’s attention turns towards India’s economic trajectory, careful policy considerations will be crucial to ensuring inclusive and resilient development. The collaboration between the government and international organizations, such as the World Bank, reflects a shared commitment to shaping a prosperous and sustainable future for India and her people.

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