India Q2 GDP: July-September growth seen at 6.8%, higher than RBI's forecast

For 2023-24 as a whole, economists broadly agree with the RBI and see GDP growth at 6.4 percent, only a tad below the central bank's forecast of 6.5 percent.

India's GDP growth likely declined to 6.8 percent in July-September from 7.8 percent the previous quarter amid robust consumption and capital expenditure continuing to support economic activity, according to a Moneycontrol survey of 17 economists.

India's GDP had grown at a four-quarter high of 7.8 percent in April-June and 6.2 percent in July-September 2022.

The statistics ministry will release GDP data for July-September at 5:30pm on November 30.

According to economists Anubhuti Sahay and Kanika Pasricha of Standard Chartered Bank, growth momentum was resilient in the second quarter of 2023-24, with a historically dry August allowing economic activity to occur in sectors such as mining.

Also Read: Industrial growth hits 14-month high of 10.3% in August

"Additionally, the strong underlying momentum has continued to be driven by ongoing government capex and consumption expenditure," Sahay and Pasricha added. In fact, such has been the growth momentum that Standard Chartered Bank earlier this month raised its growth forecast for July-September by a massive 140 basis points to 7.2 percent and for 2023-24 by 40 basis points to 6.5 percent.

One basis point is one-hundredth of a percentage point.

Underlying numbers

The fall in the growth rate from 7.8 percent to an expected 6.8 percent is likely to have been led by the agriculture and services sectors – the former due to the erratic monsoon and the latter due to the normalisation of the base effect.

Aditi Nayar, ICRA's chief economist, expects agriculture growth to fall to a four-and-a-half-year low of 1 percent from 3.5 percent in April-June "owing to the decline in output across all kharif crops projected by the First Advance Estimates".

On the upside, industrial performance is set to improve from 5.5 percent in April-June and be close to 7 percent. The same uneven rainfall that hurt farm output helped boost activity in the mining and other sectors, with electricity output up more than 11 percent year-on-year in July-September as demand jumped.

Also Read: RBI's post-Diwali retail loan dampener – will higher risk weights hurt spending?

On the expenditure side, three components are set to stand out: robust growth in private consumption and investments and a smaller drag on domestic growth from exports.

"Growth continues to be supported by consumption and investment in July-September," noted Gaura Sen Gupta, India economist at IDFC First Bank.

"Consumption growth reflects strong urban demand with FMCG volume growth higher by 10.2 percent in July-September… Capex cycle remains supported by government expenditure by both Centre and state governments," Sen Gupta added.

The Centre's capital expenditure was up 26 percent year on year in July-September, while that of states was up an even higher 38 percent.

Policy impact

At 6.8 percent, economists' expectation of the July-September GDP growth rate is 30 basis points higher than the Reserve Bank of India's (RBI) forecast of 6.5 percent. In fact, economists from the central bank have made note of the "wide consensus" that GDP growth will outperform the RBI's projections.

"The RBI's projections incorporated a turnaround in the momentum of activity into expansion in Q2 and hence the consensus, if actualised, would imply a stronger pace of activity than projected," the RBI's State of the Economy article said on November 16.

Also Read: CEA Nageswaran says Q1 GDP growth number ‘good’, maintains FY24 forecast of 6.5%

Policymakers will perhaps be happier with the fact that non-government economists' forecasts for the full-year growth rate are coming closer and closer to their own, with the government and the RBI initially seen as extremely optimistic with their projection of 6.5 percent GDP growth in 2023-24. According to 11 economists surveyed by Moneycontrol, growth for the full year may be 6.4 percent, only marginally lower than what the government had forecast way back in January when it presented the Economic Survey for 2022-23. Back then, most economists had predicted a sub-6 percent growth rate for India for 2023-24.

Also Read: Nomura, Deutsche Bank, Morgan Stanley, Moody's raise India growth forecasts

According to Kaushik Das, Deutsche Bank's chief economist for India and South Asia, the RBI may raise the GDP growth forecast of 6.5 percent for the year by 10-20 basis points if the upcoming quarterly print is "significantly stronger than expected".

In terms of the rate action, economists continue to see the Monetary Policy Committee leaving the repo rate unchanged at 6.5 percent on December 8, with monetary easing expected to begin in 2024-25. Nomura economists, for instance, expect the repo rate to be lowered to 5.5 percent by the end of 2024, with the first rate cut in April.