NEW DELHI: India’s economy put on an unexpected spurt in the October-December period as it expanded 8.4%, a six-quarter high, vastly outstripping expectations. This is going to make India an even brighter spot in the global economy — gross domestic product (GDP) is now expected to rise 7.6% in FY24 against 7.3% as per the January 5 estimate. A downward revision to the previous year’s numbers and higher net taxes also magnified the growth. Growth for FY23 was revised down to 7% from the 7.2% assessed earlier.
The economy’s showing will bolster the government’s position ahead of general elections set for April-May besides being taken into account by the Reserve Bank of India (RBI) at the next meeting of the monetary policy committee (MPC). Robust growth could delay rate cuts as the RBI prioritises inflation control. The MPC meets next on April 3-5.
An ET poll had projected 6.6% growth in the third quarter, with forecasts ranging from 6% to 7.2%.
On the expenditure side, gross fixed capital formation, a measure of investment, rose 10.6% in the third quarter against 5% growth in the year earlier, but private consumption was a disappointment with a modest 3.5% rise.
“India continues to be an outlier in terms of GDP growth,” said chief economic advisor V Anantha Nageswaran, making a case for the upward revision in FY24 forecasts by agencies.
The RBI has projected growth at 7% in FY24, while the International Monetary Fund has pegged it at 6.7%.
Third-quarter GDP growth was influenced by higher net taxes due to reduced transfer payments, said Rahul Bajoria of Barclays, revising his forecast to 7.8% for FY24 from 6.7% earlier. Net taxes grew 32% in the quarter.
“Still, GVA (gross value added) data shows underlying growth momentum remains strong, especially in manufacturing and services,” Bajoria said.
The growth rate is much higher than market expectations, said Rajani Sinha, chief economist, CareEdge. “Interestingly, the GVA growth at 6.5% for Q3 is broadly in line with expectations. This very wide gap in GDP and GVA growth numbers can be mainly attributed to the strong growth in net taxes.”
The FY22 GDP growth number was revised upwards to 9.7% in the final estimates, following on from a 5.8% contraction during the Covid year.
“Besides the downward revision, the other factor that seems to have contributed to the 3QFY24 GDP growth is non-pass through of lower input cost by the industrial sector as despite modest volume growth much higher value-added growth has been recorded in the industrial sector,” said Ind-Ra economists Sunil Kumar Sinha and Paras Jasrai.
The economy grew over 8% in the first three quarters of the current financial year, clocking 8.2%, 8.1% and 8.4% growth, respectively.
Manufacturing (11.6%), construction (9.5%), and utilities (9%) more than offset the 0.8% contraction in farm sector growth.
“It’s not appropriate to expect all the sectors of a large and diverse economy like India to perform very well at the same time,” CEA said.
ICRA chief economist Aditi Nayar said, “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.”
Source: The Economic Times