In today’s Finshots, we break down some aspects of India’s amazing economic growth for July to September 2023.

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The Story

At first glance, the headline 7.6% GDP growth is spectacular. We’ve surpassed all expectations. And there’s ample reason to celebrate. Especially since the rest of the world is struggling a tad bit.

But there's a lot hiding behind the data. So let's look at the GDP growth figure in a little more detail.

Now the first thing you’ll notice is that the Manufacturing sector has grown by a whopping 13.9%! This segment primarily consists of factory activity. It involves folks that make apparel and textiles, petroleum products, office machinery and a whole host of other similar stuff. So when you see manufacturing picking up, it’s a happy moment. You believe that the factories are running at full tilt because the demand for goods is soaring and they’re producing what’s needed.

This growth has surpassed all expectations and has been a primary driver in pushing the country's GDP. However, it's important to look at the 13.9% figure with some added context. If you look closely, you’ll see that the manufacturing sector actually sputtered during the same period last year. It fell by -3.8% and lost value. As T N Ninan from Business Standard pointed out, that means today’s manufacturing growth looks good because it’s come on the back of a low base. Or put another way, say during July to September of 2021, the value of manufacturing activity was 100. During the same period next year, it fell by 3.8% to 96.2. Now while the the sector has grown by 13.8% during the next year, the overall value is still only 109.5. Basically, manufacturing has indeed grown in the last couple of years, but perhaps the headline number doesn't capture all the details.

We can also look at another metric known as the Index of Industrial Production or IIP to get a better understanding. It calculates the value of manufacturing activity too. This is what we call a high-frequency indicator since it’s released monthly. And it kind of reveals the same thing. There's increased activity when compared to last year, however, manufacturing companies haven't been producing as much stuff in the last few months.

Should we be concerned?

Well, it's hard to say for sure. Because factories will only feel emboldened to produce more goods if there’s demand from people like you and me. We need to open our purse strings and spend at the end of the day. So, the question is — what’s happening on the expenditure side? Are people spending or are they cautious?

Well, let's look at another number. The government calculates something called the ‘Private Final Consumption Expenditure’ during the GDP exercise. Think of this as the money that people like you and me actually spend in the economy. And this has grown by 3.5% over the past year. That's still growth. However, this comes with a caveat. If you’ve been reading Finshots, you’ll remember that we’ve written a couple of stories about the rise of unsecured personal loans in the country (here and here). People have been borrowing money to spend. So some experts believe that the growth in private expenditure could be attributed to the loans. And now that the RBI is trying to turn the tap off on these loans, could consumption actually take a tumble? We hope not.

The other thing here is that the agriculture sector hasn't contributed to the GDP growth a lot. If you look at the GDP data, you’ll see that it has grown only by 1.2% in the past year. That could be a dampener for rural income. In fact, if you listen to what FMCG companies such as Britannia and Marico have to say, they’re all concerned about a slowdown in the rural segment.

And here’s the crux of the problem - Consumption drives 60% of the value of our GDP. And if this engine isn’t firing as expected, it will eventually be a drag on growth. The only way out then is for the government to spend money instead. Try and keep building stuff like roads and bridges in the hope that it will create jobs and people will spend money. But you and I know that it’s not a long-term solution. The government might need to resort to borrowing money to fulfil this obligation. At some point, that will have to end. So we need both household and private sector spending to do some of the heavy lifting too.

So yeah, in a nutshell — India is growing. But there are some hurdles along the way. And if we can iron that out, we could keep this momentum going. And hopefully, we’ll get to the mark of being a $5 trillion economy sooner rather than later.

Until then...

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Ditto Insights: Why Millennials should buy a term plan

According to a survey, only 17% of Indian millennials (25–35 yrs) have bought term insurance. The actual numbers are likely even lower.

And the more worrying fact is that 55% hadn’t even heard of term insurance!

So why is this happening?

One common misconception is the dependent conundrum. Most millennials we spoke to want to buy a term policy because they want to cover their spouse and kids. And this makes perfect sense. After all, in your absence you want your term policy to pay out a large sum of money to cover your family’s needs for the future. But these very same people don’t think of their parents as dependents even though they support them extensively. I remember the moment it hit me. I routinely send money back home, but I had never considered my parents as my dependents. And when a colleague spoke about his experience, I immediately put two and two together. They were dependent on my income and my absence would most certainly affect them financially. So a term plan was a no-brainer for me.

There’s another reason why millennials should probably consider looking at a term plan — Debt. Most people we spoke to have home loans, education loans and other personal loans with a considerable interest burden. In their absence, this burden would shift to their dependents. It’s not something most people think of, but it happens all the time.

Finally, you actually get a pretty good bargain on term insurance prices when you’re younger. The idea is to pay a nominal sum every year (something that won’t burn your pocket) to protect your dependents in the event of your untimely demise. And this fee is lowest when you’re young.

So if you’re a millennial and you’re reading this, maybe you should reconsider buying a term plan. And don’t forget to talk to us at Ditto while you’re at it.

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