GDP growth accelerates to 8.4% in Q3, estimate for FY24 pegged at 7.6%

In the third quarter of the current financial year, among sectors, manufacturing posted the highest growth rate in double digits at 11.6%, while the construction sector grew 9.5%. Agriculture recorded a contraction of 0.8% in October-December.

Private final consumption expenditure, an indicator of consumption demand, rose by 3.5% year-on-year in October-December, while government final consumption expenditure decreased by 3.2%. Gross fixed capital formation, an indicator of investment, grew by 10.6% during the third quarter.

The 8%-plus GDP print for Q3 came as a surprise as many economists had expected growth to slow down to about 6.5% from the previous quarters. The Reserve Bank of India’s projection for growth in Q3 was also pegged at 6.5%.

Robust 8.4% GDP growth in Q3 2023-24 shows the strength of Indian economy and its potential. Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat!

— Narendra Modi (@narendramodi) February 29, 2024

There were several revisions in the GDP data released on Thursday. The GDP growth for financial year 2022-23 was revised down to 7% from 7.2%, adding to the favourable base effect for the 2023-24 calculations.

For the second quarter of July-September, the GDP growth estimate was revised up to 8.1% from 7.6%, while that for the first quarter of April-June was revised to 8.2% from 7.8%, the NSO data showed. This came on the back of a downward revision in FY23 quarterly growth rates to 5.5% in July-September (earlier 6.2%) and 12.8% in April-June (earlier 13.1%). For October-December 2022-23, growth rates were revised down to 4.3% from 4.5%.

Commenting on the GDP data, Prime Minister Narendra Modi said in a post on ‘X’: “Robust 8.4% GDP growth in Q3 2023-24 shows the strength of Indian economy and its potential. Our efforts will continue to bring fast economic growth which shall help 140 crore Indians lead a better life and create a Viksit Bharat.”

Chief Economic Advisor V Anantha Nageswaran said the GDP numbers are “strong” and good momentum in economic activities is likely to continue in the fourth quarter. “So the actual performance of the economy has continued to defy expectations and do better than what many had projected, underscoring the fact that a structural transformation of the economy is indeed underway, both in terms of physical infrastructure and digital infrastructure as well as inclusion agenda, boosting the purchasing power of Indian households,” Nageswaran said.

Prospects of healthy rabi harvesting, and expectations of the fading away of El Nino and the forecast of a normal monsoon, are expected to support a better-than-normal kharif sowing, he added.

“Most of the GDP growth has come about through robust non-agricultural growth on the supply side and substantial investment growth on the demand side. The main negative news on the demand side is the slowdown in consumption expenditure growth which has clocked now only 3% for both private and government final consumption expenditure,” D K Srivastava, Chief Policy Advisor, EY India, said.

Economists pointed out the divergence between the GDP and the Gross Value Added (GVA) growth rates on account of a sharp rise in net taxes, which are estimated to have grown by 32% in Q3 FY24 in real terms. GDP is Gross Value Added or GVA plus product taxes minus subsidies. GVA, which reflects national income from the output side, is expected to grow at sub-7% with estimated 6.9% in FY24 as against 6.7% last fiscal (earlier estimate was 7.0%). This compares with GDP of 7.6% in FY24 as against 7.0% in previous fiscal.

With a 7.6% GDP growth estimated for FY24, back-of-the-envelope calculations show that the fourth quarter of January-March is estimated to post a growth rate of 5.9%. The average GDP growth for the first three quarters of FY24 is 8.2%.

“The divergence between GDP and GVA is due to net taxes less subsidies which jumped by 32% year-on-year, boosting GDP growth. The increase is due to a sharp decline in subsidy expenditure,” IDFC First Bank’s economist, Gaura Sen Gupta, said in a note.

Apart from the downward revision in GDP growth for the previous financial year, the other factor that seems to have contributed to the Q3 GDP growth is non-pass through of lower input cost by the industrial sector as, despite modest volume growth, much higher value-added growth has been recorded in the industrial sector, economists said.

“This volume and value added disconnect of the industrial sector is also playing out in the higher wedge between GVA and GDP growth as the difference between the two is net taxes. Non-pass through of lower input cost has resulted in higher corporate profitability and higher payment of taxes,” India Ratings’ Principal Economist Sunil Kumar Sinha and Senior Analyst Paras Jasrai said in a note.

Economists said going forward, the most critical aspect to watch out for will be a broad-based improvement in consumption growth and private investments. “The upward revisions in data for the full-year FY24 pose a potential downside risk to our existing FY25 forecast of 6.7%,” CareEdge said in a note.