Defying expectations by a considerable margin, India’s economy witnessed a six-quarter high growth rate of 8.4 per cent in Q3FY24, largely due to extraordinarily high tax collections and control over subsidies, amid significant revisions in earlier gross domestic product (GDP) estimates.
A Bloomberg poll of economists had estimated GDP growth of 6.6 per cent for the December quarter, while the Reserve Bank of India had projected slightly slower growth at 6.5 per cent for the same period.
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The National Statistical Office (NSO), in its second advance estimates data released on Thursday, revised the FY24 growth estimate upward to 7.6 per cent, from the 7.3 per cent projected in January. This upward revision was aided by a downward adjustment of the FY23 growth estimate to 7 per cent, from the previously projected 7.2 per cent. The average GDP growth for the first three quarters of FY24 stands at 8.2 per cent, implying that the fourth quarter growth is assumed at 5.9 per cent.
The nominal GDP for FY24 is projected at Rs 294 trillion, assuming 9.1 per cent growth, slightly higher than the 8.9 per cent growth assumed in the first advance estimates released in January. This projection will likely ease the government’s path to achieving the revised fiscal deficit target of 5.8 per cent of GDP for FY24.
Surprisingly, gross value added (GVA) at basic prices stayed within the range of analyst expectations at 6.5 per cent. Robust growth in net indirect taxes, because of a sharp decline in subsidy expenditure, contributed to the wide gap with the real GDP growth estimate.
“This wide gap followed a surge in the growth of net indirect taxes to a six-quarter high of 32 per cent in the December quarter, which is unlikely to be sustainable. In our view, it may be more appropriate to look at the trend in the GVA growth to understand the underlying momentum of economic activity,” noted Aditi Nayar, chief economist at ICRA Ratings.
In the December quarter, manufacturing continued its double-digit growth for the second consecutive quarter (11.6 per cent), as companies maintained robust profit margins due to depressed input costs. Growth in services -- trade, hotel, transports; financial, real estate; and public administration and other services -- picked up sequentially to grow at 7 per cent in the third quarter and remained a key growth driver. Farm output is estimated to have contracted by 0.8 per cent in the December quarter due to an uneven monsoon caused by the El Ni？o effect.
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Sunil Kumar Sinha, principal economist at India Ratings, pointed out that apart from a favourable base for the December quarter, the non-pass through of lower input cost by the industrial sector contributed to growth in GDP. “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,” he said.
Growth in private final consumption expenditure, or private spending, remained weak in the third quarter, growing at a mere 3.5 per cent. Meanwhile, government spending contracted (-3.2 per cent) during the same period as both central and state governments exercised restraint on revenue expenditure. However, gross fixed capital formation, a proxy for investment demand, continued to show robust double-digit growth (10.6 per cent) for the second quarter in a row, signalling a continuation of capital expenditure by the government.
Rajani Sinha, chief economist at Care Ratings, stated that going forward, the most critical aspect to watch out for will be a broad-based improvement in consumption growth. “The other critical aspect would be a meaningful improvement in private investment. Overall robust GDP growth will be sustainable only when there is a meaningful improvement in consumption and private investment,” she said.
Exports, despite global headwinds, recorded a 3.4 per cent growth in the December quarter in rupee terms, largely driven by services exports. While merchandise exports, after witnessing subdued growth in the past two quarters, picked up to 2.5 per cent in the third quarter, services exports grew 6.2 per cent.