GDP - The Growth Coin

On one side, the coin shows India as the world's fastest-growing economy. Flip it, and GDP growth is clearly slowing. And that could be a worry

- Alokesh Bhattacharyya

On december 7, when Reserve Bank of India (RBI) Governor Shaktikanta Das announced the hiking of the repo rate (the rate at which the central bank lends to other banks) by 35 basis points to 6.25 per cent, heads nodded in agreement, as the hike was on expected lines. But what mildly raised eyebrows was his announcement of a cut in the gross domestic product (GDP) growth projection for FY23 to 6.8 per cent from 7 per cent forecast in September. In fact, the 7 per cent itself was a step down from the 7.2 per cent that the central bank had held earlier (in April), and not because of continuing challenges such as external geopolitical disturbances impacting India’s exports, inflation, etc.

In fact, the GDP growth rate for Q2 of FY23, which was announced six days before the governor’s address, slowed to 6.3 per cent—from 13.5 per cent in Q1 of FY23 and 8.4 per cent in Q2 of FY22. But that seems not to have worried anyone because it was on expected lines. “Interestingly, the GVA (gross value added) growth figures were 70 bps short of the GDP numbers. This may be due to higher tax collections as GDP is GVA plus net taxes,” points out Sanjay Kumar, Partner, Tax and Public Policy Leader at Deloitte Touche Tohmatsu India. “Higher tax collections are good and bode well for the current financial year. It is another sign of a good recovery.”