India’s GDP Decoded: The drivers behind those peppy numbers

India’s GDP Decoded: The drivers behind those peppy numbers

India’s GDP for the third quarter ending December 2023 grew 8.4%, and it is expected to close FY23-24 at a robust growth of 7.6% — compared to 7.0% in 2022-23 according to the data released by the National Statistics Office. This is significant because economists’ expectations were largely in the range of 6.5 and 7.6 percent for the third quarter of the year.

The expectation is that nominal GDP will grow 9.1% in 2023-24, and growth estimates for the second quarter have been revised upwards to 8.1% , while for the first quarter its been moved up to 8.2%, from 7.8%.

The reason for the unexpected growth spurt seems to be positive news coming from various sectors. Construction grew 10.7%, trade, hotels, transport, communications, and services grew 6.5%, manufacturing gained 8.5%, while agriculture and allied sectors are estimated to have grown 1.8% between April-December, 2023-24. In the third quarter of 2023-24, agriculture grew 0.8%, manufacturing 11.8%, and construction gained 9.5%.

Non-agri sectors are propelling the growth, say economists. Manufacturing has gained big, the services sector has done well, hotels and trade have put up a robust performance, while agriculture has slowed down.

DK Srivastava, Chief Policy Advisor, EY India, explains that for the first three quarters, the GDP has grown at an average of 8.2%, and for the year it is poised to grow 7.6%, which implies that fourth quarter growth could be “very low.”

“GDP growth for FY23-24 is estimated at 7.6%, exceeding the estimated 7.3% per the first advance estimates released on 5 January 2024. This also exceeds by a significant margin the IMF and World Bank’s estimates of 6.7 and 6.3%, respectively. Most of the growth has come through robust non-agricultural growth on the supply side, and substantial investment growth on the demand side,” Srivastava noted.

The negative news on the demand side is the slowdown in consumption expenditure, which grew only 3%(”Some surprises that need further exploration relate to GVA (gross value-added) growth remaining at 6.9% while GDP growth is revised upwards to 7.6%. Also, the average GDP growth for the first three quarters of FY24 is 8.2%, implying that the fourth quarter growth would only be 5.9%,” Srivastava observed.

However, India’s core sector growth of 3.6% in January was the lowest in 15 months. The core sector includes eight key industries — coal, crude oil, steel, cement, electricity, fertilisers, refinery products and natural gas.

The data released by the CSO also indicates healthy 14.5% growth in gross tax revenues during April-January FY23-24. Economists Moneycontrol spoke to explained that the government could well be on its way to achieve the fiscal deficit target of 5.8%.

India’s numbers stand out at a time when the world’s leading economies are struggling to grow. The UK's economy grew 0.1% in 2023 while Japan and Eurozone economies are grappling with the possibility of a recession.