There are two headlines that you can choose from India’s expected fiscal second quarter growth numbers. One is that the gross domestic product growth reading is likely to beat forecasts, the other is that the print will show a moderation from the first quarter number, which was a four-quarter high. Nonetheless, India is poised to maintain its status as the fastest-growing major economy in the world.
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Robust consumption and state-led spending on capital assets likely propelled India’s economic growth beyond the RBI’s projection of 6.5% in July-September quarter of FY24, according to economists. A median poll of 10 economists by the ET showed the economy clocking growth figures of 6.7%, 20 basis points more than that of the RBI estimate for the quarter. A Reuters poll of economists estimated India’s GDP growth at 6.8% in the July-September period, easing from the previous quarter’s 7.8%.
India also stands poised to uphold its position as the fastest-growing major economy with growth expectations exceeding 6.0% over the next few years, surpassing most other major economies. This robust performance is attributed to the vigor in service activity and urban demand, even in the face of challenges posed by the global economic downturn affecting export growth.
The positive outlook for the second quarter is partly fueled by increased government capital expenditure, reaching 4.91 trillion Indian rupees ($58.98 billion) in the first half of the fiscal year, surpassing the previous year’s 3.43 trillion rupees.
India is scheduled to release the GDP numbers for Q2FY24 at 5:30 pm on November 30.
Consumer demand, a pivotal factor constituting approximately 60% of GDP growth, has proven resilient, primarily driven by urban dwellers. Despite inflationary pressures stemming from an erratic monsoon, demand from India’s vast population of over 1.4 billion people remains steady.
Rahul Bajoria at Barclays said, “Headline growth likely remained resilient…with utilities, services, and construction showing robust growth. Domestic demand remains the key economic driver of activity, as external demand continues to remain weak.”
Looking ahead, economists are divided on the primary drivers of economic growth for the remainder of the fiscal year. Fourteen economists point to government spending, 13 stress on consumption, and five highlight investment.
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The dichotomy between rural and urban demand is evident, with rural demand facing a temporary setback in the July-September quarter due to higher prices for everyday items. Economists, however, predict this weakness to be short-lived, with 69% expecting the gap between rural and urban consumption to narrow over the next two-to-three years.
Upasana Chachra, Chief India Economist at Morgan Stanley, expresses optimism, stating, “We expect private consumption growth to recover further as it narrows the gap between rural and urban demand and between goods and services.” Chachra highlights that an improvement in purchasing power, coupled with a moderation in core inflation, would support the revival of rural consumption.
India’s economic landscape remains resilient, propelled by strong domestic demand and government expenditure, positioning the country as a standout performer among major economies despite global challenges, according to some economists.
Experts note that despite a slowdown in services growth in the second quarter, robust manufacturing and construction activity likely contributed to the positive growth.
ICRA said that India’s GDP growth likely moderated to 7% in Q2, considering a normalising base and erratic monsoon. The firm anticipates a lower GDP growth of 6.0% for FY2024, citing various factors impacting the economy.
ICRA notes robust investment activity in the country during the second quarter, with seven out of eleven investment-related indicators showing improved year-on-year growth. The firm maintains a cautious outlook for the remainder of the fiscal year, considering various economic factors at play.
India’s continued economic momentum is being lauded amid a global environment that has become highly uncertain owing to risks associated with geopolitical conflicts, volatile energy prices and fears of a looming recession.
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Meanwhile, S&P points out that headline inflation will likely remain at RBI’s 4% target, delaying potential rate cuts.
The rating agency forecasts 5.5% inflation in FY24, declining to 4.5% in FY25. It expects inflation to average 4.7% in FY26 and FY27.
