NEW DELHI: India’s GDP growth in real terms in the second quarter of FY24 may have been significantly higher than 6.5% projected by the Reserve Bank of India (RBI), according to a few economists who FE spoke to, in this regard. While most have revised their estimates upwards, the estimates range from 6.2% to as high as 6.9%.
Relatively strong consumption demand that persisted through the second quarter after an uptick witnessed in the first quarter and sequentially stronger government consumption expenditure are cited by economists to support the upward revisions of their estimates of Q2 GDP. Robust services sectors are also being seen to boost the growth figure, while investment rate is stable.
At an event last week, the RBI Governor Shaktikanta Das had said, “growth momentum in India continues to be strong. Looking at the momentum of economic activity and looking at a few early data points which have come, I can say that the second quarter GDP number…will surprise everyone on the upside.”
“We expect GDP growth in Q2 FY24 to be 6.9% compared to 7.8% in Q1 FY24. Both consumption and investment are likely to support growth in Q2 FY24 also,” said DK Pant, chief economist, India Ratings & Research.
In April-June, the private final consumption expenditure’s (PFCE) growth had risen to 6% from 2.8% in January-March, while the gross final capital formation (GFCF) growth had eased to 8% from 8.9%. The PFCE indicates the overall consumption in the economy and the GFCF denotes investments.
The share of PFCE in Q1 GDP had risen to 57.3% from 55.0% in Q4 FY23, while GFCF’s share had ebbed to 34.7% from 35.3%.
PFCE’s share of 57.3% in April-June was the second-highest for the first quarter of any financial year in the current GDP series which started in 2011, and that of GFCF – although equivalent to Q1 FY23 – was the highest. This trend is likely to continue in the second quarter of FY24 as well.
Moreover, Abhishek Upadhyay, senior economist, ICICI Securities Primary Dealership says that an uptick in government’s revenue expenditure – reflected in the government’s final consumption expenditure (GFCE) – will also provide a boost to GDP growth in Q2, and it may come in at 6.7%.
In Q1, the GFCE’s share had fallen to 10.1% from 11.1% in the previous quarter. The government’s revenue expenditure had contracted 0.1% y-o-y during the period. However, July-September has seen a rebound with revenue expenditure rising 10% on year.
On the gross-value added (GVA) side, services activity, which primarily led growth in Q1 remained buoyant in Q2 too. Services PMI, compiled by S&P Global, in Q2 averaged 61.1 – the highest in 13 quarters. In Q1, it had averaged 60.6.
But, manufacturing activity too showed an improvement in Q2 as compared to the previous quarter. “Manufacturing and government spending which were quite weak in the Q1 should be stronger in Q2. High-frequency data has supported manufacturing in Q2,” said Upadhyay.
The Index of Industrial production’s (IIP) growth in July-August averaged 8.2% as compared to 4.7% in Q1. Although the data for September IIP is not yet released, economists see it around 6%. The Manufacturing PMI in Q2 averaged 57.9 – flat as compared to Q1.
That said, HDFC Bank’s Principal Economist Sakshi Gupta expects GDP growth in Q2 to be 30 bps lower than the RBI’s estimate at 6.2% largely due to uneven monsoon, which shall weigh on agricultural GVA and drag down growth. In Q1, agriculture GVA had grown 3.5% against 5.5% in Q4 FY23.
Source: The Financial Express