Robust growth in 2nd quarter GDP of 2023-24 (July -September) re-stablished that India is resilient to global sanctions, projecting its strong economic fundamentals. India pinned continuous growth in GDP in all quarters since January 2023, despite global sanctions imposed on Russia in December 2022.
However, the noteworthy feature of 2nd quarter growth growth was that a new era of structural change in the trajectory of growth was created in 2nd quarter of GDP. It was manufacturing that triggered growth. Hitherto, manufacturing was dismal in every growth projection, even after bouncing back in 2021-22, the post COVID period.
Manufacturing recorded 13.9 percent growth in 2nd quarter of 2023–24, the highest ever growth since the country was plagued by COVID. During the corresponding period last year, it declined by 3.8 percent. Further, GDP growth in 2nd quarter of 2023–24 overshoots the expectations, despite sanctions continuing.
This translates as an healthy growth of GDP, which underpinned the hope for escalation of employment opportunities, which was lagging despite the growth.
India’s growth was highest among the global rich countries in July-September, 2023. It surpassed China, USA, Japan, France and UK.
The upturn in the growth fortifies strong economic parameters of India. Factors behind the strong parameters were changes in the policy directives, which helped to seize in the fallout of sanctions.
The foremost policy change was shifting of oil import from Arab world to Russia. India defied sanctions and increased crude oil imports substantially from Russia.
Larger import of oil from Russia had multiple effects to strengthen economic fundamentals. India is oil import dependent nation. More than 90 percent of requirement is met by import. Till the sanction was imposed, Arab world was the major supplier. It supplied more than 60 percent oil import to India. After it resorted to Russian oil, the share of Russian oil made a leapfrog jump. It increased to 21 percent in 2022-23, against 2 percent in 2021-22 and swelled further to 40 percent in first five months in 2023-24 ( April- August). This gave a new lease of life to the oil based economic fundamentals of the country.
Russian oil was the cheapest among all oil imports. The average Russian crude oil was priced at US$68.7 per barrel during five months in 2023-24 ( April- August), as compared to Saudi oil at US$ 87.0 per barrel, Iraqi oil at US$ 75.9 per barrel and Kuwait and UAE oil at US$ 89.7 per barrel.
Increase in Russian oil imports and its cheap prices imparted a favorable impact on several economic parameters of the country. First, it is expected to reduce pressure on total import of the country. This is because oil accounts for a major share in the total import basket, nearly one-fifth of total import. During first six months of 2023-24 ( April-September), total oil import bill slashed by 23. 5 percent, even though imports by quantity declined marginally, by 3.7 percent. It will have a cascading impact on Balance of Payment.
Oil has inextricable relation with inflation in the country. As and when, oil price was hiked, inflation in the country geared up. But this time, notwithstanding global oil price hike after sanctions, growth in inflation was in reverse gear. Against the inflation by 6 percent in 2022 -23 (in terms of CPI), inflation was 5.4 percent in first 7 months of 2023-24 ( April-October).
Oil based product diesel has profound impact on inflation. The prognosis of past inflation trajectory says, whenever there was a hike in inflation, it was the food prices which was held responsible. The hike in food prices was due to hike in diesel prices. The reason attributed to this was that most of the daily necessities of food products, such as perishable items, are transported by trucks and lorries.
Diesel prices in the country was not hiked after the sanctions, even though global crude oil price increased. Price of Brent crude oil increased by about 11 percent after the sanction– from US$ 81 per barrel in December 2022 to US $ 90.3 per barrel in October 2023. Notwithstanding, diesel and petrol prices in the country remained unchanged, according to Ministry of Petroleum and Chemicals.
This demonstrates that the windfall of cheap oil crude oil import from Russia shielded the impact of the sanctions.
Eventually, low inflation escalated demand in the country. This could be one of the reasons for the spur in GDP growth in the 2nd quarter of 2023-24. According to the World Bank’s IDU report (India Development Update), focussing global challenges, it said that “this resilience was underpinned by robust domestic demand, strong public infrastructure and strengthening financial sector”.
The main plank for trigger in manufacturing growth, besides demand, was a new face of manufacturing policy. A major part of Make in India was linked to the PLI scheme (Productivity Linked Incentive ). Scheme unleashed special incentive to boost manufacturing in the country.
Eventually, India emerged a potential destination for investment. FDI soared in manufacturing in India. It increased by 76 percent in manufacturing sector in 2021-22 over 2020-21. India sprang to second biggest manufacturer of mobile phones in the world.
India improved by a long jump in the World Bank Logistic Performance Index. It notched up by six points to 38 in 2023 from 44 out of 139 countries.
In summing up, a new road map has been drawn for Make in India to be the alternative global supply chain manufacturing destination, after China’s dismal growth.