The biggest contributors to variability are gross capital formation (680.6%), the government consumption at 129.3% and private consumption at 105.7% (Last row of Table 3 above).
It is not a surprising result. We do expect gross capital formation to be volatile, as most capital investments are lumpy by their very nature and are driven by expectationsof and sentiments around future growth. On the other hand, the private and government consumption rates are expected to have low volatility, and they are less volatile in our case too.
In summary, we have proven that we can grow at a higher pace with lower risk of growth.
Did India navigate Global Financial Crisis better than the COVID crisis?
During the decade starting 2004, (when the Manmohan Singh-led UPA was in power), we grew by 6.8%, with variability being 25.5% — a period during which gross capital formation (10.2%) as well as exports (13.9%) grew consistently (Table 2 and 3, above). However, the imports, driven by high global commodity price inflation, grew @ 14.1%, faster than exports — putting pressure on the current account balance and causing fear among domestic as well as global investors who were struggling to recover from fall in demand.
During the latest decade, when the current government has been steering us, our growth has been slower at 5.9%, which was driven by lower growth in gross capital formation (6.5%) and a decline in growth in exports (5.2%).
Our consumption growth too declined during this period — government consumption growth falling from 6.5% per annum to 5.5% and that for private consumption declining from 6.1% to 5.7%.
A big learning
Growth in Fixed Capital Formation is positively correlated with Growth in Private Consumption, and is, therefore, an important driver of aggregate growth
In the Chart 2 below, we see that the growth in fixed capital formation and private consumption is positively correlated at 0.59, implying that the growth in long-term investment helps drive private consumption or vice versa. Valuables and stocks, the other two components of gross capital formation, do not impact private consumption as much.
Chart 2: Gross Fixed Capital Formation and Private Consumption
