A strong GDP growth at 8.4 percent (y-o-y) in Q3, FY24 and at 7.6 percent (y-o-y) for the full year FY24 shows the remarkable resilience of the Indian economy despite increased global headwinds and climate-related risks. Interestingly the primary drivers of GDP growth during FY24 so far have been the manufacturing and construction sectors.
Growth revival of the manufacturing sector during the second and third quarters of FY24 is truly encouraging, as the sector had stayed in a low growth trap for almost seven-eight quarters before Q2, FY24. The index of industrial production (IIP) statistics shows a sustained growth momentum during Apr-Dec, FY24, for various sectors like motor vehicles, trailers, transport equipment, machinery manufacture, electrical equipment, fabricated metal products, basic metals, non-metallic mineral products, rubber and plastic products, pharmaceuticals, refined petroleum products, and food products including beverages. This means the manufacturing sector has started responding to the strong capex push given by the Central Government during the post-pandemic period.
In sequential terms (quarter-on-quarter) however, three sectors – manufacturing, electricity and services – have posted deceleration in growth, which could be attributed to the waning of festival effect and the late onset of winter, which impacted the demand for electricity.
The expenditure side of the GDP statistics shows a muted year-on-year growth in private consumption expenditure, which is offset by a strong growth in overall investment spending even during Q3, FY24. However, the Government’s committed efforts to achieve “fiscal consolidation” are clearly visible during Q3, FY24 as there was a sharp quarter-on-quarter reduction in the government’s consumption spending (-10.9 percent) as well as capital spending (-3.3 percent).
The fact that India’s economy has been doing well in the global context is also reflected in the trade components of GDP statistics. While exports growth (in real terms) has slowed drastically during the first nine months of FY24 on the back of lower global demand, imports growth has not slowed much. As the ‘import intensity’ of Indian manufacturing activity is very high, imports have not slowed much in real terms.
A gap of 190 bps between the GVA growth of 6.5 percent (y-o-y) and the GDP growth of 8.4 percent (y-o-y) during Q3, FY24, gets explained by the surging net indirect tax receipts that reached a six-month high growth of 32 percent in this quarter. One needs to see if the ongoing K-shaped recovery in ‘consumption spending’ would continue to support this kind of superlative growth in India’s indirect tax revenues, going forward.
In line with the broader expectations, there was a de-growth of ‘agriculture & allied activities’ (-0.8 percent) during Q3, FY24, after a long gap of 18 quarters due to the El Nino conditions that prevailed throughout FY24. The resultant high food inflation has been weighing on “rural consumption” as was pointed out by one of the Monetary Policy Committee (MPC) members in the minutes of the last policy. Today’s GDP statistics amply explains why the MPC of RBI did not rush for changing the monetary policy stance in its last policy meeting on February 8.
India’s resilient economy despite heightened global headwinds and the supportive policy mix – prudent fiscal policy combined with inflation targeting monetary policy – will go a long way toward boosting investors’ confidence in the Indian economy.
Dr Rupa Rege Nitsure is Chief Economist, L&T Finance Holdings Ltd. Views are personal, and do not represent the stand of this publication.
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