July 16, 2023

Consumption Growth Slows but Corporates Bag High Profits

Sanjay Roy

THE recent press release by the National Statistical Office on the provisional estimates of National Income quarterly estimates for the fourth quarter (January to March) together with the provisional estimates for the year 2022-23 deserves attention. It provides estimates for GDP and related figures of 2022-23 in current and constant 2011-12 prices with the corresponding figures of 2020-21 (2nd Revised estimates) and of 2021-22 (1st Revised Estimates).

The crucial headlines of the statistics from the recent press release are the following. The growth rate estimated has fallen from 9.1 per cent in 21-22 to 7.2 per cent in 2022-23. Secondly, the decline in growth rate is accompanied by a decline in the per capita income growth rate from 7.6 per cent in 21-22 to 6.3 per cent in 2022-23. Third, in terms of sectoral growth manufacturing sector records a massive decline in growth rate from 11.1 per cent in 2021-22 to 1.3 per cent in 2022-23. Fourth, the growth of private final consumption expenditure has fallen from 11.2 per cent in 21-22 to 7.5 per cent in 22-23. Fifth, export growth declines from 29.3 per cent recorded in the previous year to 13.6 per cent in 2022-23. All these figures are disconcerting although hardly such issues became the focus of policy makers in the recent period. These trends have to be read with the fact that the profit of the listed companies or the big corporates in the quarter ending March 2023 has been much higher than the average profits that these corporates earned during the pre-pandemic period of 2017-19.


This is a major concern that the growth of manufacturing has fallen drastically in the year 2022-23 compared to the previous year. It actually suffered a contraction in the second and third quarter recording a growth rate of -3.8 and -1.4 respectively and then the growth in the fourth quarter was 4.5 per cent. Sharp fall in growth of value added is also recorded in mining and quarrying sector as well as in construction. In the mining sector, growth has fallen from 7.1 per cent in 2021-22 to 4.6 per cent and  in the construction sector, it slid from 14.8 per cent to 10.0 per cent respectively. There has been fall in the growth of public administration, defence and other services, marginal rise in growth in the trade and communication services and high growth in financial services. Financial sector growth rate increased from 4.7 per cent in 2021-22 to 7.1 per cent in 2022-23.

The decline in the growth of manufacturing value added in the year 2022-23 is not something surprising because in the last five years the growth of manufacturing in India was not only lower than that of services but also lower than the average growth of agriculture. This has been pointed out on several occasions by scholars and policy makers across the political spectrum that the stagnant share of manufacturing in GDP for almost four decades is really a matter of concern.

The current government tried to address this issue through policies like ‘Make in India’ or through production linked incentives declared for various sectors. Besides the issue of meagre amount allotted for PLI schemes and the narrow view behind such incentives, these policies grossly failed in addressing the issue of slow manufacturing growth in India particularly because of the lack of a comprehensive approach that is required at the moment to address the problem. There are two sides of the problem. One is the demand side of the issue that is reflected by the slowing down of private final consumption expenditure and the long term decline in the growth of expenditure in plant and machinery in Indian industry. The second and equally important issue is the substantial leakage in demand through imports. This essentially means that manufacturers in India are not able to produce goods at a competitive price and consumers depend on imported products. In terms of industrial output also there are ample evidences of rising import intensity from toy industry to automobile sector and although we are now globally integrated, India’s share in global manufacturing value added increased from 1.1 to 2 per cent while China’s share in the same period increased from 5 per cent to 25 per cent. Our exports growth declined primarily because of slowing down of the global economy but also because we are not able to get a greater share of the existing pie.

The real issue in case of India is the pattern of growth that has become skewed in favour of profit earners and against the wage and salary earners over the years that actually restricted the growth of mass consumption goods particularly durable consumer goods and also increased the demand for high-end imported products and financial assets that the rich prefers to procure. On the supply side, Indian corporates are hardly inclined to invest in R&D and acquire competence to produce globally competitive manufacturing products. Instead because higher profits could be realised in the financial activities surpluses are increasingly channelled towards speculative gains while investment in physical productive capacities are grossly undermined by the private corporates sector. For the producers, however, issue of course being the persistent low capacity utilisation and a low expectation of profit because of the low demand which held back the growth of capital formation in India for the past two decades. It is also important that during the neoliberal regime because of the commodification of many essential and non-essential services such as health and education, a portion of the consumption expenditure of the poor people are used towards purchasing these services which were earlier supplied by the government. This also reduces the money left to purchase manufactured products for the majority of the people.


It is important to note that the growth of private final consumption expenditure for the year 2022-23 has been estimated to be lower than the growth rate recorded in the previous year. The growth of private final consumption expenditure fell from 11.2 per cent in 2021-22 to 7.5 per cent in 2022-23. This is a real concern because private consumption constitutes the major share that is 58.5 per cent of our GDP and if that component falters it would tend to pull down the GDP growth as well. Government final consumption expenditure growth has fallen from 6.6 per cent in 2021-22 to 0.13 per cent in 2022-23. But, the most surprising fact is during this period corporate profits soared significantly. It had been reported by the CMIE that the listed companies bagged huge profits in the quarter ending March 2023 to the tune of Rs 2,388 crores and this has been 3.5 times the average quarterly profits corporates earned during the pre-pandemic period of 2017-19. This has been possible despite declining consumption expenditure growth primarily because of inflation. If we compare the growth of private consumption expenditure in the quarter ending March 2023 to the corresponding quarter of the previous year in constant 2011-12 prices, it shows a growth rate of 2.8 per cent but if we see the growth of private consumption expenditure for the same two reference periods in current prices growth would be 7 per cent. This means that the growth in real terms was far less than the growth measured in current prices.

Similarly, the growth of private final consumption expenditure in real terms for 2022-23 has been estimated to be 7.5 per cent but measured in current prices the growth comes out to be 15 per cent. The growth estimated in current prices reflects the combined effect of increase in both volume and prices while the growth in real terms manifests the increase in the volume of sales. Therefore, the growth in profit of the corporates in the recent past was more due to rise in prices rather than increase in the volume of sales.  In other words, while there had been a shrinkage in real income of the vast mass of poor people in India during the past episodes of inflation, the corporates actually had a good time!