Q2 GDP: Broad-based recovery across sectors supported high growth, says India Inc

Led by robust growth in manufacturing and mining, Q2 GDP growth has exceeded expectations at 7.6 percent

With India's Gross Domestic Product (GDP) growth rate for the July-September quarter at 7.6 percent, India Inc says the recovery across sectors, including manufacturing, construction and utility services, has resulted in high growth, which is likely to sustain despite global headwinds.

“Led by robust growth in manufacturing and mining, Q2 GDP growth has exceeded expectations at 7.6 percent, with strong macroeconomic fundamentals providing impetus to growth in a challenging global environment,” said Federation of Indian Chambers of Commerce and Industry (FICCI) President Subhrakant Panda. “India continues to be the fastest growing major economy with proactive policies helping capitalise on a large domestic market and favourable demographics.”

The Q2 GDP growth is higher than expected. The Indian economy had expanded by 7.8 percent in April-June 2023 and 6.2 percent in July-September 2022.

“Continued momentum in the growth of GDP is encouraging and expectations of more than 7 percent GDP growth in the full financial year are becoming strong.  A broad-based recovery across  sectors supports growth at a high level,” Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry, said.

The high growth of manufacturing, at 13.9 percent, followed by construction, at 13.3 percent, and electricity, gas, water supply, and other utility services, at 10.1 percent, indicate that economic activity is now on the high road, said Agrawal. The mining and quarrying sector also grew strongly at 10 percent, he added.

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, the construction sector’s GVA rose by 13.3 percent, up from 7.9 percent in April-June.

“We appreciate that despite the global headwinds, the economy continues to grow consistently. The continued high momentum of Gross Fixed Capital Formation, at 35.3 percent of GDP, is inspiring and indicative of continuous expansion of capex in the coming quarters. We are glad to see that India is emerging as a beacon of economic resilience, and continues to be a bright spot in the global economic landscape,” Agrawal said.

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

“We are optimistic that, despite global headwinds, our economy will continue to grow as one of the fastest among the major economies,” he added.

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd (MOFSL), said that as impressive as the headline number is, the details are even more impressive. Better growth was almost entirely driven by investments and fiscal spending, with private consumption growth remaining weak.

Further, with better real growth, nominal GDP growth was also at 9.1 percent, better than expectations.

“Overall, India's GDP growth remains extremely strong. At 7.7 percent real growth in H1, it is almost certain that the full-year growth will be revised upwards once again, probably to 6.5-6.6 percent,” he said.

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.

“India's investment rate rose to 32.9 percent of GDP in Q2, better than 32.1 percent of GDP in Q2 FY23. Consequently, it is likely that household financial savings picked up in Q2 FY24,” Gupta said.

One bit of confusion from the Q2 GDP data, however, is in matching strong retail loans with weak private consumption growth, he added.