India’s Q3 GDP growth at 8.4%, beats D-Street estimates

India’s Q3 GDP growth at 8.4%, beats D-Street estimates

Amidst the unveiling of India’s third-quarter GDP figures for the fiscal year 2023-24 on February 29, the nation witnessed a notable upsurge. The data disclosed a remarkable 8.4 percent year-on-year expansion, surpassing the 4.3 percent growth observed in the corresponding period of the previous year. This revelation, unveiled through the latest official statistics, underscores a striking deviation from earlier projections.

Analysts had anticipated a more subdued growth trajectory for the third quarter of the fiscal year 2023-24, ranging between 6 and 7 percent. Contrary to these forecasts, India’s economic landscape exhibited a robust performance, propelled by an 8.4 percent surge in GDP. Notably, this growth momentum eclipses the 7.6 percent expansion witnessed in the preceding quarter of July-September 2023.

Prime Minister Narendra Modi lauded the formidable GDP growth of 8.4 percent during the third quarter of 2023-24, emphasizing its reflection of the nation’s economic resilience and latent capabilities.

In articulating his vision for the future, PM Modi articulated, “Our relentless endeavors shall persist in fostering rapid economic advancement, thereby facilitating a transformative shift towards an enhanced standard of living for the 1.4 billion citizens of our nation, culminating in the realization of a prosperous and developed India!”

The government also fixes the FY24 GDP expansion rate at 7.6 per cent, as per an official declaration.

“Gross Domestic Product at Unchanging (2011-12) Worth in Q3 of 2023-24 is assessed at Rs 43.72 lakh crore, in contrast to Rs 40.35 lakh crore in Q3 of 2022-23, revealing a progression rate of 8.4 per cent,” as stated in the announcement.

As per the most recent information disclosed by the National Statistical Office (NSO), India’s gross value supplemented or GVA, which is GDP minus net product tariffs and mirrors expansion in provision, also surged 6.5 per cent year-on-year throughout October-December 2023.

As indicated by the latest official statistics, advancement in the manufacturing field soared to 11.6 per cent in the third quarter of the current budgetary year as compared to minus 4.8 per cent in the previous year’s matching duration.

India’s agricultural domain, however, experienced a regression to negative 0.8 per cent growth in the third quarter of fiscal year 2024, a notable decline from the 5.2 per cent ascent observed in the October-December interval of 2022-23.

The gross fixed capital formation (GFCF), serving as a gauge for investment endeavors within the nation, exhibited a commendable surge of 10.58 per cent, amounting to Rs 14.18 lakh crore during the December 2023 quarter. GFCF constitutes 32.4 per cent of the Gross Domestic Product (GDP).

India Q3 FY24 Gross Domestic Product (GDP) Growth: 5 Fundamental Observations

  1. Q3 GDP Expansion Significantly Surpasses Urban Financial Predictions and Reserve Bank of India (RBI) Projections

During the December quarter, the GDP growth exhibited a remarkable surge, outstripping forecasts from financial analysts as well as growth projections outlined by the Reserve Bank of India (RBI). The RBI had steadfastly maintained its forecast for real GDP growth throughout 2023-24 at 7 per cent, with a Q3 projection of 6.5 per cent and Q4 at 6 per cent.

In its recent monetary policy session, the central bank expressed profound apprehension regarding the escalating inflationary pressures and the associated potential hazards to the growth trajectory. Urban financial analysts and numerous brokerage entities had anticipated the GDP expansion to hover around 6-7 per cent in the third quarter, envisioning a deceleration within the industrial domain.

  1. Manufacturing and Construction Segments Bolster GDP Growth

The National Statistical Office (NSO) attributed the superior performance to the robust growth witnessed in the manufacturing and construction sectors. “The manufacturing sector recorded double-digit growth, complemented by commendable expansion in the construction domain,” stated the NSO. Over the past decade, the manufacturing sector, which has historically accounted for merely 17 per cent of Asia’s third-largest economy, exhibited a notable year-on-year expansion of 11.6 per cent during the December quarter.

Simultaneously, the construction sector registered a significant growth of 9.5 per cent, fueling the overall expansion during the quarter under review. Sectors such as public administration, defense, and ancillary services also recorded a notable uptick, with growth rates reaching 7.5 per cent compared to 3.5 per cent observed during the corresponding period in the previous fiscal year.

3. The GDP growth for FY24 has been reevaluated upward to 7.6% from the initial forecast of 7.3%.

The Ministry of Statistics, in its subsequent advanced evaluation of national accounts, has placed the nation’s annual GDP expansion at 7.6%. Initially anticipated at 7.3% for the current fiscal year, this revision arrives in spite of forecasts indicating a slowdown in both consumer spending and government disbursements.

Furthermore, the National Statistical Office (NSO) has adjusted the GDP growth for 2022-23 to 7%, a slight decrease from the earlier approximation of 7.2%. The nominal GDP, or GDP at current prices, for 2023-24 is expected to reach ₹293.90 lakh crore, in contrast to ₹269.50 lakh crore in 2022-23, indicating a growth rate of 9.1%.

4. Government expenditure saw a reduction of 3.2%, while private consumption witnessed an increase of 3.5%

During the December quarter compared to the corresponding period the previous year. Investment exhibited a noteworthy surge of 10.6% during the same quarter.

Adverse weather conditions led to a contraction of 0.8% in the agriculture sector. India experienced its least substantial monsoon in five years, prompting the government to prolong restrictions on the export of agricultural commodities such as sugar, rice, and wheat. Meanwhile, growth in the services sector, encompassing trade, hospitality, transportation, communication, and broadcasting-related services, reached 6.7%.

5. Chief Economic Advisor (CEA) V Anantha Nageswaran advocated for a reevaluation of FY24 projections by rating agencies in light of India’s Q3 GDP figures. He emphasized that the Indian economy continues to exceed expectations, underscoring its structural evolution. CEA Nageswaran suggested that global agencies should consider revising their estimations of India’s potential growth upwards.

Despite challenges posed by uncertain global growth, high-frequency indicators suggest that Q4 FY24 will maintain its positive momentum. CEA Nageswaran noted that although global demand remains a concern, India’s external sector exhibits resilience, demonstrating no signs of susceptibility.

Economic analysts anticipate the Reserve Bank of India (RBI) to uphold its policy stance, discerning no immediate necessity for reductions in interest rates.

In reference to the GDP figures, Nish Bhatt, the Founder & CEO of Millwood Kane International, emphasized that at 8.4 per cent Year over Year (YoY), this marks the most robust expansion since the second quarter of 2022.

“Looking ahead, it is conceivable that India will uphold its status as one of the globe’s swiftest-expanding economies, outpacing any comparable emerging market nations. Nevertheless, we might observe some proximate moderation owing to the inflationary influence stemming from food prices, geopolitical tensions, and the Red Sea predicament,” elucidated Bhatt.

Regarding the policy stance, Thamashi De Silva, an Assistant India Economist at Capital Economics in London, remarked, “Any deceleration in growth shall be subtle, especially as the government’s impetus towards infrastructure is anticipated to bolster activity. This constrains any immediate requirement for interest rate reductions. We speculate that the Reserve Bank of India will commence easing its policies in the third quarter of 2024, notably later than the majority of other prominent emerging markets.”

India's Q3 GDP growth at 8.4%, beats D-Street estimates

we anticipate a moderation in economic activity in the forthcoming quarters. Nonetheless, it is poised to retain an extraordinary vigor, thereby mitigating the imperative for policy relaxation in the interim,” supplemented De Silva.

Senior Economist Radhika Rao of DBS Bank, Singapore, concurred. “The prospective hazards to the trajectory predominantly stem from exogenous factors, encompassing unforeseen exacerbations in the geopolitical realm alongside the capricious oscillations in commodity markets. The formidable growth dossier is anticipated to fortify the central bank’s sanguinity concerning the trajectory, thereby buttressing their inclination towards maintaining stringent policy stances,” asserted Rao.

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