India’s gross domestic product (GDP) growth surprised on the upside post the pandemic but also fluctuated significantly. Different economic segments have recovered at different speeds. The fiscal policy focus of the government on infrastructure spending led to higher multiplier effects for the economy. The healthy balance sheets of corporates and banks and healthy external markets added to India’s resilience.

That said, some technical factors such as net product taxes and the GDP deflator also disrupted the GDP’s trajectory. Their movements have been large and volatile due to factors such as an abnormal surge in government spending and swings in commodity prices. This contributed to the GDP growth surging to 8.2% last fiscal and widened the wedge between GDP and GVA growth.

The current fiscal is seeing a normalisation of these technical factors with the impact of pandemic shocks receding. This is contributing to slower GDP growth.

To be sure, high interest rates, persistent and fiscal consolidation contributed to slower GDP growth this fiscal so far.

Yet the main macro drivers remain healthy. Private consumption growth has fared better than last year in the first half of the current fiscal. While investment growth has moderated relative to last year, its share of GDP remains higher than the pre-pandemic decade.

With normalisation of the abovementioned technical factors, GDP growth is likely to move closer to trend growth of 6.5-7%.

We explain the movement in these technical factors, along with their impact on GDP growth, in this insight.