Blockbuster Jul-Sep GDP numbers brighten FY24 growth outlook
Informist, Friday, Dec 1, 2023
By Shubham Rana
NEW DELHI – The spectacular growth in India's GDP in Jul-Sep surprised even the most optimistic of forecasters, so much so that economists now project the growth for the full year ending March to be closer to 7.0%, sharply higher than estimated earlier.
India's GDP grew at a robust 7.6% in the second quarter of the financial year, driven by double-digit growth in industry. The GDP growth in Jul-Sep was higher than 6.2% a year ago, but marginally lower than 7.8% recorded in Apr-Jun.
To Put Into Perspective How Big The Surprise Is, The Growth Figure For Jul-Sep Was 110 Basis Points Higher Than The Reserve Bank Of India's Estimate Of 6.5%.
To put into perspective how big the surprise is, the growth figure for Jul-Sep was 110 basis points higher than the Reserve Bank of India's estimate of 6.5%. It was also 80 bps higher than the consensus estimate and 40 bps above the highest estimate of 7.2% in the Informist poll.
RBI Governor Shaktikanta Das in October said looking at the momentum in economic activity, the GDP data for Jul-Sep was expected to surprise on the upside. But even the central bank would not have expected such a sharp jump.
Economists now expect GDP growth in 2023-24 to be higher than their previous estimates, with revisions ranging from 20 bps to close to 100 bps. After the release of GDP numbers for Apr-Jun, the GDP growth for 2023-24 was seen at 6.1?cording to an Informist poll. Now, most economists expect growth to be higher than the RBI's current estimate of 6.5%.
"The GDP print has surprised on the upside for three consecutive quarters, indicating underlying strength in certain pockets of the economy," Morgan Stanley, which revised up its GDP growth forecast for 2023-24 by 50 bps to 6.9%, said in a research report.
Nomura, which had earlier projected India's GDP growth in 2023-24 at 5.9%, now expects it at 6.7%. Emkay Global Financial Services, too, has revised its full year growth estimate to 6.6% from the 5.7% projected at the beginning of the year. Economists now expect the RBI to revise its GDP growth projection higher by around 20-30 bps.
India's GDP has grown 7.7% in Apr-Sep. Even if the growth in the remaining two quarters is in line with the RBI's estimates of 6.0% and 5.7% for Oct-Dec and Jan-Mar, respectively, the full-year figure will be around 6.8%. Some economists even expect the 2023-24 GDP growth to be higher than 7.0%. "With 7.7% real GDP growth in H1 FY24 (Apr-Sep), the overall growth for full fiscal would be around 7.0% (assuming 6.0-6.2% growth in H2). Though there are chances that it may cross the 7.0% mark in FY24," Soumya Kanti Ghosh, group chief economic adviser, State Bank of India said in a report.
Growth in Jul-Sep was mainly driven by broad-based growth in industry, with the sector growing at a nine-quarter high of 13.2%. Within industry, manufacturing growth was 13.9%, the highest since Apr-Jun 2021-22, and construction grew at a five-quarter high of 13.3%. Mining grew at an eight quarter high of 10.0% in Jul-Sep, and power and gas grew at a five-quarter high of 10.1%.
On the expenditure side, gross fixed capital formation led the charge with a five-quarter high growth of 11.0% in Jul-Sep. The sharp jump in fixed capital formation can be attributed to robust capital expenditure by the government. The Centre's capital expenditure during Jul-Sep rose 26.4% from the year-ago period. Capital formation was supported by growth in government consumption expenditure in Jul-Sep at 12.4%, a 10-quarter high.
"Overall, headline GDP has surprised positively, but the government appears to be in the driver’s seat – both for consumption and investment. Private consumption and private capex remain weak, in our view," economists at Nomura said in a report.
For the second half of the financial year ending March, growth is expected to slow down, as is reflected from the RBI's quarterly GDP growth projections, as the favourable base effect fades away and external headwinds dominate, economists said.
"While growth has turned out to be stronger than expected in 2023 and Apr-Sep, we expect the momentum to moderate in Oct-Mar and 2024 due to the lagged impact of monetary policy tightening, intensification of a global growth slowdown, the fading of domestic pent-up demand, and possible weather-related adverse factors," Kaushik Das, chief economist, India and South Asia, Deutsche Bank, said in a report.
Growth momentum is also expected to moderate as companies’ profit growth is seen slowing down because of a rise in input cost pressures, and high food inflation with CPI inflation seen closer to 6% in November and December.
But economic momentum has held up well in the current quarter as well, thanks mainly to the festival demand, which may push the full year growth rate closer to 7%, economists said.
"Economic activity indicators for Oct-Dec so far signal that growth has held up during this festive season. While optically H2 FY24 (Oct-Mar) prints are expected to be lower than H1 as the favourable base effect impact fades, on a sequential basis we see an increase in H2," HDFC Bank said in a report. Economists at HDFC Bank expect GDP to grow at 6.8% in 2023-24.
Monthly indicators show that Oct-Dec is off to a strong start. Goods and services tax collections, e-way bill generation and core sector growth all point to a robust quarter. End