India’s GDP grew 8.4 per cent in the December quarter of FY24 on account of higher next taxes due to reduced transfer payments. The Ministry of Statistics and Programme Implementation’s second advance estimates indicate a GDP growth of 7.6 per cent, surpassing the initial estimate of 7.3 per cent released before the Union Budget in January. Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities, said, “Much of the upside surprise was from net taxes. The underlying production growth reflected in GVA growth was closer to expectations at 6.5 per cent. Broadly, GDP data indicated that investment growth continues to outpace consumption growth by a huge margin.”
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India’s economic growth witnessed significant upswing on the back of good performance by the sectors such as construction, mining & quarrying and manufacturing. “Private and government consumption expenditure was very weak, while investments grew strongly and ‘discrepancies’ contributed immensely to real GDP growth,” said Nikhil Gupta, Chief Economist, MOFSL Group.
“Q4 GDP growth surged to 8.4 per cent YoY, though it was influenced by higher net taxes due to reduced transfer payments. Still, GVA data shows underlying growth momentum remains strong, especially in manufacturing and services. We revise our growth forecasts upwards and now expect the MPC to cut rates starting Q3,” said MOFSL Group.
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Details suggested that better growth was almost entirely driven by investments (12.2 per cent in 3QFY24, highest in six quarters vs. 2.8 per cent in 3QFY23). On the other hand, private consumption growth remained weaker at 3.5 per cent YoY in 3QFY24 vs. 1.8 per cent/ 2.4 per cent in 3QFY23/2QFY24. At the same time, government consumption contracted 3.2 per cent in 3QFY24 vs. +7.1 per cent in 3QFY23.
Further, Gross Capital Formation (GCF) at current prices is estimated at Rs 86.78 lakh crore for the year 2022-23 as compared to Rs 76.48 lakh crore during 2021-22. The rate of GCF to GDP is 32.2 per cent during 2022-23 as against 32.4 per cent in the 2021-22. The rates of capital formation in the years 2011-12 to 2019-20 and 2021-22 to 2022-23 have been higher than the rate of saving because of positive net capital flow from RoW, said the government data.
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In terms of the share to the total GFCF (at current prices), the highest contributor is Non- Financial Corporations followed by the household sector, share of which stood at 44.2 per cent and 41.8 per cent respectively in 2022-23. The rate of GCF to GDP at constant (2011-12) prices was 36.7 per cent in 2021-22 and 34.9 per cent in 2022-23.
Economists opined that the data suggests that India is on a high and sustained growth path, which means the “RBI will see little urgency to cut rates while the MPC awaits for comfort on headline inflation”.
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Here are economists and experts’ take on the GDP data…
Dr Manoranjan Sharma, Chief Economist, Infomerics Ratings
India’s economic growth rose to 8.4% in the December quarter, raising prospects for the world’s fastest-growing major economy. Gross domestic product rose 8.4% from a year ago compared with a revised 8.1% in the previous quarter because of double-digit growth in the manufacturing sector. The FY24 estimate was also revised upwards to 7.6% from 7%.
While agriculture declined 0.8% in Q3, as compared with 1.6% growth in Q2, mining grew 7.5%, up from 11.1% in the previous quarter and manufacturing expanded 11.6%, as against 14.4% in the prior quarter. Electricity and other public utilities expanded by 9% versus 10.5%. Greatly welcome. India is clearly on a high and sustained growth path.
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Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd
The Q3 data on India’s growth threw up a divergent trend, with the GVA growth moderating broadly on expected lines to 6.5%, and the GDP expanding by a much higher than anticipated 8.4%. This wide gap followed from a surge in the growth of net indirect taxes to a six-quarter high of 32% in this quarter, which is unlikely to be sustainable. In our view, it may be more appropriate to look at the trend in the GVA growth to understand the underlying momentum of economic activity.
Private final consumption expenditure growth inched up but remained tepid at 3.5% in Q3 FY2024, with rural demand perceived to be cautious after an unfavourable monsoon and urban demand assessed to be uneven as well. Investments emerged as the fastest growing component of GDP in Q3 FY2024, and displayed a mild sequential dip, contrary to the sharp slowdown seen in government capex.
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Suman Chowdhury, Chief Economist & Head of Research, Acuité Ratings
The second advance estimates of GDP for FY24 released by NSO has indeed sprung a major surprise on the markets. One of the key reasons for the material shift in the GDP print is the revisions in the GDP data for some quarters of the previous fiscal.
What is noteworthy is the significant differential between GVA (6.5%) and GDP (8.4%) growth in the third quarter. The manufacturing sector has grown by 11.6% YoY in Q3FY24 which may be partly due to higher operating margins driven by lower raw material costs. Expectedly, the services sector has seen a significant uptick, but the agricultural sector has seen a modest contraction of 0.8% during the quarter. Importantly, the private consumption growth has been sluggish at 3.6% and in the context of high GDP growth, remains an area of concern.
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Given the revised GDP data, we may need to rework our estimates for FY24. Clearly, the higher-than-expected momentum in the economy may lead to a tight monetary policy from RBI for a longer period and any reversal in the current stance is unlikely over the next 6 months.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE
GDP growth of 8.4% in the third quarter of FY24 has strengthened India’s position as the fastest-growing major economy globally. The growth trajectory is a testament to India’s economic resilience and its capacity for sustained development. The manufacturing sector, with an impressive double-digit growth rate, alongside the construction sector, which saw a healthy growth rate of 9.5%, were pivotal. These sectors not only bolster the economy but also significantly contribute to the real estate market’s dynamism. The growth in construction indicates a robust demand for residential and commercial spaces, underscoring a vibrant real estate market.
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Rumki Majumdar, Economist, Deloitte India
The growth numbers have surely taken the market by surprise as there was an expectation that the economy may moderate this quarter. We have always been very bullish about India’s growth and the Q3 quarter growth as well, which coincided with the biggest festivals of India, and the World Cup celebrations. Even past quarters data have been revised up substantially, which means just within the first 3 quarters, India’s GDP grew by 8.2%.
Private consumption demand improved in Q3 but was weighed down by negative growth in government consumption. The IIP of consumer durables and improved passenger and two-wheeler sales did point to a revival in spending in Q3. The strong growth in Q3 came from investments, which shows that private investments are now at the cusp. Finally, India is witnessing government investment spending crowding in private investments.
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The GVA growth was more in line with the market expectations. Manufacturing and construction activities were the biggest growth drivers, while services remained strong too. However, unseasonal rains led to a contraction of agriculture, which could impact rural demand in the Q4 quarter.
Nikhil Gupta, Chief Economist, MOFSL Group
GDP break-up remains unconvincing. Private and government consumption expenditure was very weak, while investments grew strongly and ‘discrepancies’ contributed immensely to real GDP growth. Going forward, we expect real GDP growth to ease towards ~6% in 4Q (from 5.6% expected earlier), which is in line with CSO’s forecast, leading to 7.6% growth in FY24. For FY25E, we expect growth to ease to 5.5-6% (from 5.4% expected earlier).
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Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays
Q4 GDP growth surged to 8.4% YoY, though it was influenced by higher net taxes due to reduced transfer payments. Still, GVA data shows underlying growth momentum remains strong, especially in manufacturing & services. We revise our growth forecasts upwards and now expect the MPC to cut rates starting Q3.
The data release also contained second advance estimates (SAE) of full-year FY23-24 GDP growth, pegging it at 7.6% YoY (FAE: 7.3%). That said, we note that GVA growth in Q4 23, at 6.5%, was close to our forecast, suggesting net taxes contributed heavily to growth (~2.3pp, compared with 1.0pp in Q3). We think this was an effect of subsidies falling in YoY terms. We see some slowing in momentum in economic activity in Q4, but with sectors like manufacturing
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continuing to support growth materially.
We raise our FY23-24 GDP growth forecast to 7.8% (earlier: 6.7%) with upside risks given Q1-Q3 FY24 growth is currently averaging 8.2%. We also raise our forecast for FY24-25 GDP growth to 7.0% (earlier: 6.5%). We expect the steady domestic growth momentum to continue, supported by continued increases in government capex, much anticipated rising private investment and monetary easing.
Today’s print suggests growth is moving faster than expected by the RBI, which means the central bank will see little urgency to cut rates while the MPC awaits for comfort on headline inflation. In our view, four members of the MPC remain hawkish as per the February meeting and solid growth will buy them more time to wait and watch data on inflation, especially on food.
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While there is the capacity to ease monetary policy, in our view, we now push back our rate cut call from Q2 to Q3 24 as the lack of need to ease policy to support growth will keep the MPC comfortable with its current policy rate and stance.
Nish Bhatt, Founder & CEO, Millwood Kane International
India’s gross domestic product (GDP) grew 8.4 percent in the December quarter boosted by 11.6% growth in the manufacturing sector, 9.5% in the Construction sector, and 3.8% in the farm sector, beating market projection of 6.6%.
At 8.4% YOY, this is the strongest growth since the second quarter of 2022. In the process, India has retained the tag of the world’s fastest-growing major economy. Moving forward, India can be expected to maintain its position as one of the world’s fastest-growing economies, surpassing any comparable emerging market countries. However, we may see some near-term moderation due to the inflationary impact of the food prices , geopolitical, and the Red Sea crisis.
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Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
Real GDP growth in 3QFY24 was much ahead of expectations at 8.4%. However, much of the upside surprise was from net taxes. The underlying production growth reflected in GVA growth was closer to expectations at 6.5%. Broadly, GDP data indicated that investment growth continues to outpace consumption growth by a huge margin. Households savings rate dipped in FY2023 led by lower financial savings rate compared to FY2022. As expected, physical savings rate increased marginally. For policy makers, the concern on growth will remain minimal for now with growth staying on a decently strong footing.
