Akash Jha
The Ministry of Statistics and Programme Implementation said on August 31 that India’s GDP growth rate increased to 7.8 percent between April and June, marking a new quarterly high.
The latest quarterly growth number, at 7.8 percent, is somewhat higher than expected. According to a Moneypoise survey, experts predicted a 7.7 percent increase in GDP for Q1 2023–24.
Meanwhile, 8 percent expansion was predicted by the Reserve Bank of India (RBI).
In the first quarter of 2022, the Indian economy grew by 6.1%, while in the second quarter, it grew by 13.1%.
| BREAKDOWN OF APRIL-JUNE GDP DATA | |||
| Q1 FY24 | Q4 FY23 | Q1 FY23 | |
| Real GDP | 7.8% | 6.1% | 13.1% |
| Nominal GDP | 8.0% | 10.4% | 27.7% |
| Real GVA | 7.8% | 6.5% | 11.9% |
| Agriculture, forestry, fishing | 3.5% | 5.5% | 2.4% |
| Mining, quarrying | 5.8% | 4.3% | 9.5% |
| Manufacturing | 4.7% | 4.5% | 6.1% |
| Electricity, gas, other utilities | 2.9% | 6.9% | 14.9% |
| Construction | 7.9% | 10.4% | 16.0% |
| Trade, hotels, transport, etc | 9.2% | 9.1% | 25.7% |
| Financial, real estate, professsional services | 12.2% | 7.1% | 8.5% |
| Public administration, defence, other services | 7.9% | 3.1% | 21.3% |
The favorable base effect that contributed to the growth rate increase in April-June is diminishing, but it did play a role.
“The lower-than-expected GVA growth was largely on account of the manufacturing sector,” said Aditi Nayar, chief economist at ICRA. “Despite the improvement in manufacturing volumes, as depicted by the IIP (Index of Industrial Production) for the same and a deflation in commodity prices, the manufacturing sector saw a surprisingly meek uptick to 4.7 percent in April-June from 4.5 percent in January-March.”
ICRA predicted that GDP growth will increase to 8.5%.
“The sharp, broad-based contraction in merchandise exports is likely to have weighed on the performance of manufacturing in April-June,” Nayar said.
According to the GDP spending data, the value of India’s exports dropped 7.7 percent from the previous year’s April-June quarter. Imports, meanwhile, rose by 10.1% for the same time period.
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Private consumption expanded by 6.0% year-on-year in April-June, compared to 2.8% in January-March and 19.8% in April-June 2022, according to the spending side of GDP data. In the meantime, gross fixed capital formation growth (a stand-in for investments) slowed to 8% in Q1 2023-24, from 8.9% in Q1 2022-23 and 20% in Q2 2022-23.
Meanwhile, government spending fell by 0.7%, following increases of 2.3% in January-March and 1.8% in April-June 2022.
The expenditure-side internals remain optimistic, especially the pick-up in private consumption growth and the ongoing strong growth in the capex cycle, says Gaura Sen Gupta, India economist at IDFC First Bank.
Strong real urban wage growth and early signs of recovery in rural demand suggest that urban demand will drive consumption growth. Capital expenditures from the federal and state governments had a significant increase from April to June, as noted by Sen Gupta.
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The RBI predicts that growth will slow from its rapid pace in April-June 2023 to 6.5 percent in July-September 2023, 6.0 percent in October-December 2023, and 5.7 percent in January-March 2024, before picking up to 6.6 percent in April-June 2024.
The RBI will have a difficult time tightening monetary policy in the face of robust growth and rising inflation. According to Sujan Hajra, head economist of Anand Rathi Shares and Stock Brokers, “we would expect a symbolic rate hike if retail inflation does remain high in August.”
