THE ECONOMY sprung a surprise in July-September 2023-24, recording a 7.6 per cent growth in the second quarter, considerably higher than the consensus estimate. The surge was largely led by the manufacturing sector which jumped 13.9 per cent year-on-year in the second quarter, helped by a favourable base and improved volume growth, data released by the National Statistical Office (NSO) on Thursday showed.
With the latest print, GDP growth during the first half of the year — April-September 2023 — added up to 7.7 per cent compared with 9.5 per cent in the year-ago period. The GDP had recorded a four-quarter high growth of 7.8 per cent in April-June this year, and had grown 6.2 per cent in July-September 2022.
Reacting to the growth uptick, Chief Economic Adviser V Anantha Nageswaran said overall investment and consumer sentiment will underpin solid momentum in the current and next financial years. “In terms of projections, these numbers impart a certain upside to 6.5 per cent estimate for real GDP growth in the current year, but we will have to work the numbers to see what kind of upside the current numbers impart for the full year estimates. Until then we will keep the estimate at 6.5 per cent, except to signal that we are now probably more comfortable with this number than we were before,” he said.
The CEA also said GDP growth could be getting understated rather than overstated. “If you look at the combined indirect and direct taxes collections, if you look at the first first half of the current fiscal, the growth is 16.3 per cent and nominal GDP growth in the first half has been about 8.6 per cent. That translates into buoyancy of 1.9… if you recall, the Budget numbers assumed nominal GDP growth of 10.5 per cent for the full financial year and the revenue growth was also assumed at around the same level. So these numbers tell us that the tax buoyancy which is as high as 1.9 or close to 2, or that we are probably still underestimating our GDP growth and economic activity. Contrary to several prejudices which masquerade as opinions, the truth could very well be that India’s GDP growth, based on our current statistics, we may be understating it rather than overstating it,” he said.
The construction sector surprised on the upside, and so did the mining and electricity, gas, water supply and other utility services by recording a double-digit output growth in the July-September quarter. Alongside the favourable base effect, benign input cost pressures are also seen to have helped the manufacturing sector.
There was, however, a perceptible slowdown in the y-o-y growth of the services and the agriculture sectors, which grew at a subdued 5.8 per cent and 1.2 per cent, respectively during the second quarter.
Government-led capital expenditure was a major driver of growth in the second quarter, with Government Fixed Capital Formation (GFCF) — a proxy for investments — jumping 11.04 per cent as against 8 per cent growth in the first quarter. Meanwhile, Government Final Consumption Expenditure (GFCE) grew at 12.4 per cent in July-September as against a 0.7 per cent contraction in the first quarter.
Consumption demand, as reflected in private final consumption expenditure (PFCE), recorded a slower pace of growth at 3.1 per cent compared with a 6 per cent growth in the first quarter. Reflecting this, private consumption expenditure, as a share of GDP, reduced to 56.8 per cent of GDP in July-September from 59.3 per cent in the year-ago period, even as government expenditure increased to 8.9 per cent of GDP from 8.6 per cent.
Meanwhile, Gross Fixed Capital Formation (GFCF) — a proxy for investments — jumped 11.04 per cent in July-September FY24 as against 8 per cent growth in the first quarter.
“The latest numbers indicate that the economic recovery is on track despite the adverse geopolitical situation… A healthy growth of 11 per cent y-o-y in GFCF (a five-quarter high) suggests continuation of government capex… In the absence of corporate sector capex, the government is not only providing the necessary support but also doing the heavy lifting as far as capex is concerned. The combined capex of the Union and 26 states grew by 26.7 per cent y-o-y during the second quarter. GFCE shot up by 12.4 per cent y-o-y (a ten-quarter high) as the Union and state governments have been front loading expenditure in view of elections in some states,” said Sunil Kumar Sinha, Principal Economist & Senior Director – Public Finance and Paras Jasrai, Senior Analyst, India Ratings & Research.
In terms of a sector-wise breakup, the manufacturing grew at a nine-quarter high of 13.9 per cent in July-September 2023 as against 4.7 per cent in April-June 2023 on a low base of (-)3.8 per cent in July-September 2022. Mining and quarrying grew at 10.0 per cent compared with 5.8 per cent in April-June and (-) 0.1 per cent a year ago. The construction sector grew at 13.3 per cent in July-September this year as against 7.9 per cent a quarter ago and 5.7 per cent growth in the year-ago period.
The stronger-than-anticipated industrial performance was offset by the steep deceleration in the services sector as well as the expectedly muted performance in agriculture. The financial, real estate and professional services grew at 6 per cent in July-September as against 12.2 per cent in the first quarter and 7.1 per cent in the year-ago period. Within services, the crucial trade, hotels, transport, communication services segment recorded a tempering of growth at 4.3 per cent as against 9.2 per cent in April-June, and 15.6 per cent in the year-ago period. The growth in agriculture, forestry and fishing too slowed to 1.2 per cent in July-September as against 3.5 per cent in April-June and 2.5 per cent in the year-ago period.
RBI Governor Shaktikanta Das had in October said that Q2 GDP growth may surprise on the upside. As per the latest monetary policy statement by the RBI, real GDP growth for 2023-24 is projected at 6.5 per cent, with Q2 at 6.5 per cent, Q3 at 6 per cent, and Q4 at 5.7 per cent, with risks evenly balanced.
Economists said the growth rate may not sustain going ahead for the remaining part of the financial year. “Looking ahead, we project GDP growth to moderate significantly in H2 FY2024, with the continuing headwinds such as the normalising base, weak outlook for agri output and rural demand, tepid global growth, narrowing differentials in commodity prices and transmission of past monetary tightening. Additionally, the possible slowdown in momentum of government capex as we approach the Parliamentary elections could constrain growth outcomes. Given the higher than forecast outcome for Q2, we are revising our FY2024 growth forecast to 6.2% from 6.0%,” said Aditi Nayar, Chief Economist, Head – Research and Outreach, ICRA Ltd.
