Explained: Why India's Q3 FY24 GDP growth touched 8.4%

Growth in manufacturing significantly impacts GDP growth.

India has hit the ball out of the park with its Q3 FY24 GDP growth surpassing all estimates. The country’s gross domestic product (GDP) for the October-December quarter grew 8.4 percent, data released by the Ministry of Statistics and Programme Implementation (MOSPI) on February 29 showed.

The Q3 FY24 GDP growth is higher than the previous quarter’s 8.1 percent expansion, and nearly double the lower base of 4.3 percent recorded in the same quarter of the previous year. The 8.4 percent Q3 GDP growth rate is also the highest in seven quarters.

Also read: India's GDP growth accelerates to 8.4% in Q3; FY24 growth pegged at 7.6%

As a result, the statistics ministry now expects the country’s full-year (2023-24) GDP growth to touch 7.6 percent.

Several factors contributed to GDP growth touching 8.4 percent in Q3 FY24.

Sectoral Performance: Growth in specific sectors such as manufacturing, services and construction impacts overall GDP growth. A strong performance by key sectors due to factors such as increased demand, technological advancements or favourable policies can drive overall economic expansion. The construction sector registered double-digit growth in FY 2024, fuelled by robust residential demand and the push given to the infrastructure sector by the government. Strong manufacturing growth and robust services sector growth in Q3 FY 2024 have further contributed to the high growth in FY 2024. Broadly, growth in agriculture remains weak but private consumption continues to provide steady support to GDP growth.

Base Effect: The comparisons with the low base in the corresponding period in the previous year are also a factor.

Economic Recovery: Following the COVID-19 pandemic and associated lockdowns, many economies, including India, have experienced a rebound in economic activity as restrictions were lifted and businesses resumed operations.

“The GDP growth is impressive, much higher than the market expectation. However, there is a considerable divergence between GDP and GVA and that is due to the indirect taxes net of subsidies. The annual growth estimate of the RBI will have to be revised upwards,” economist Govinda Rao told Moneycontrol.

Government Stimulus: Government policies and stimulus measures aimed at boosting economic growth, such as infrastructure spending, tax incentives, and monetary policies supporting credit availability, could have contributed to economic expansion.

“GDP growth surpassed expectations in Q3, coming above 8 percent. However, from the supply side, GVA growth was in line with expectations, at 6.5 percent. This divergence is due to the strong net tax growth in the quarter. while manufacturing and services continue to push up growth,” Sakshi Gupta, Vice President & Principal Economist, HDFC Bank, told Moneycontrol. “The upward data revision of the full-year FY24 figure to 7.6 percent presents a downside risk to our current FY25 forecast of 6.4 percent.”

Consumer and Business Confidence: Improvements in consumer and business sentiment, driven by factors such as declining unemployment rates, increased investment, and optimism about future prospects, stimulate spending and economic growth.

Global Factors: Economic performance can be influenced by global trends, including recovery in major economies, international trade dynamics, and commodity prices, which can impact India’s export-oriented sectors and overall economic output.

“The judicious fiscal-monetary policy coordination has supported the sustained economic growth recovery process. However we cannot read much from the high-frequency data, given the downward risks from the debt crisis, energy and climate change and hawkish interest rates globally,” Lekha Chakraborty, National Institute of Public Finance and Policy (NIPFP) economist, told Moneycontrol. “The economic growth process is investment-led, which is sustainable. However, we need to keep fiscal policy accommodative for the growth recovery process.”