India Q2 GDP: July-September growth at 7.6%, sharply above forecasts

The sharply higher-than-expected growth rate in the last quarter was down to a jump in activity in the manufacturing and construction sector. While the manufacturing sector's gross value added (GVA) grew by 13.9 percent year-on-year in July-September, up from 4.7 percent in April-June, that of the construction sector rose by 13.3 percent, up from versus 7.9 percent in April-June.

As expected, agricultural growth slowed down to 1.2 percent from 3.5 percent in April-June.

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While the latest GDP print is well above economists' expectations, the government and the RBI had been warning of a good number. On November 29, Economic Affairs Secretary Ajay Seth had said that he anticipates a "good" GDP growth number for the second quarter of 2023-24. Before that, RBI Governor Shaktikanta Das, on October 31, had remarked that the July-September growth rate could be a positive surprise. However, the number has left economists more than just surprised.

"India's Q2 FY24 GDP growth data offered us a 'Just looking like a wow' moment," said QuantEco Research's economists.

"At 7.6 percent, not only did growth defy street expectations by a wide margin they also defied expectations of a slowdown in growth in Q2 as well as H1 FY24 – for a second consecutive quarter," they added.

GDP growth for the first half of 2023-24 stands at 7.7 percent, down from 9.5 percent in the first six months of 2022-23.

Along with manufacturing and construction, mining (10.0 percent) and 'electricity, gas, water supply and other utility services' (10.1 percent) also posted robust double-digit growth numbers in July-September. On the whole, the growth in gross value added (GVA) in the second quarter was 7.4 percent as against 7.8 percent in April-June. For April-September, GVA growth was 7.6 percent.

GDP is the sum of GVA and net indirect taxes.

On the expenditure side, growth in private final consumption expenditure declined to 3.1 percent from 6.0 percent in April-June and 8.3 percent a year ago, while gross fixed capital formation - a proxy for investments - rose 11.0 percent.

Growth in gross fixed capital formation in April-June and July-September 2022 was 8.0 percent and 9.6 percent, respectively.

Meanwhile, government's expenditure rose by 12.4 percent.

"Details suggest that better growth was almost entirely driven by investments and fiscal spending... Additionally, external trade subtracted 3.6 percentage points from real GDP growth in 2QFY24, the highest quarterly drag since 4QFY16 as imports grew at a much sharper pace than exports," Nikhil Gupta and Tanisha Ladha of Motilal Oswal Financial Services said.