SURYAThe Indian economy has shown impressive growth in the third quarter of FY 2023-24, beating expectations and defying forecasts. India’s GDP expanded at a robust 8.4% in the October-December period, showing sustained momentum after registering a growth rate of over 8% in the previous two quarters.
According to official government data released on Thursday, the 24-year full-year GDP growth estimate has been revised to 7.6 percent from 7.3 percent.
Q3 GDP growth was higher than Reserve Bank of India (RBI) forecasts and Q4 was 6%, driven by strong private sector investment and a pickup in service spending.
A Mint poll of 17 economists had forecast GDP growth at 6.6 percent.Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, believes FY24 GDP growth will be close to 8 percent.
“The third quarter GDP numbers shocked the minds and cognitive frameworks of most in the market, while surprising some. Clearly, the right policy prisms and perspectives can overcome irrational expectations that border on fault lines.
Based on FY24 GDP growth of 7.6%, we estimate Q4 GDP growth at 5.9%, which we believe is a downside. Hence, FY24 GDP growth is likely to be in the 8% range,” Ghosh said.
However, there was a sharp wedge of 190 basis points (bps) between GDP and gross value added (GVA) growth, which economists said reflected higher growth in the government’s net indirect taxes, possibly due to lower subsidies.
The second estimate for FY24 shows real GDP rising 30 bps to 7.6%, while real GVA is unchanged at 6.9%.
GVA growth was just 6.5 percent in October-December, down from 7.7 percent in the previous quarter. Gross value added is GDP of goods minus net taxes.
Interestingly, while FY24 nominal GDP growth is slightly higher than the first estimate of 9.1%, it is 10% lower in value terms. The implied Q4 GDP/GVA growth print will fall to 5.9%/5.4%, indicating that Q4 accounts for most of the growth moderation.
“GVA growth on the manufacturing side has been relatively volatile and the large GDP-GVA wedge in FY24 will normalize by next fiscal,” said Madhavi Arora, Lead – Economist, MK Global Financial Services.
FY25 GDP Projections
Meanwhile, the Q3 GDP data prompted economists to raise their growth forecasts for FY25, while most of them expected FY24 GDP growth to be around 8%.
UBS raised its FY25 real GDP growth estimate to 7% from 6.2% earlier.
India’s economy is showing resilience with real GDP growth beating expectations of 8.4% in the December 2023 quarter. This strong growth coupled with positive signals from leading indicators prompts us to raise our FY25 GDP growth forecast to 7%. YOY. “Although consumption growth remains sluggish, we expect a gradual recovery, especially in the premium and rural segments,” said UBS India Economist Tanvi Gupta Jain.
Going into FY25, they expect consumption growth to recover marginally as urban demand normalizes, but the premium/rich segment continues to perform well and rural demand recovers in a normal monsoon. Investment recovery will be more broadly based.
“While growth in public capex will moderate, we expect residential housing support and revival in private corporate capex to continue to gain traction post-election. “Finally, we forecast a modest improvement in exports (of goods and services) as global goods import volumes improve and services exports remain resilient,” Jain said.
Kotak Institutional Equities pencils in GDP growth at 6.6%, up from the earlier estimate of 6.3%, with the Centre’s continued capex thrust (albeit at a slower pace) coupled with states’ capex, and a lag during the global growth slowdown. Moderate consumption growth continued.
“In the medium term, we expect GDP growth to be around 6.5% as the drivers remain in line with current trends,” she said.
Barclays raised its FY24 GDP growth forecast by 110 basis points to 7.8%. The bank’s economists also raised their forecast for FY25 by 50 bps to 7%.
