India’s GDP demonstrated robust expansion, reaching 8.4% during the October-December period, sustaining momentum from the previous quarters where growth rates exceeded 8%.
Revised estimates for the full-year FY24 GDP growth stood at 7.6%, up from the initial projection of 7.3%. The Indian economy’s performance during the third quarter of fiscal year 2023-24 surpassed expectations and defied projections.
Soumya Kanti Ghosh, Group Chief Economic Adviser at the State Bank of India, anticipates FY24 GDP growth to hover near 8%.
Ghosh remarked on the surprising yet encouraging third-quarter GDP figures, emphasizing the role of effective policies in surpassing market expectations.
Based on the 7.6% GDP growth projection for FY24, Ghosh estimates Q4 GDP growth at 5.9%, potentially underestimating the actual growth.
However, GVA growth stood at 6.5% in October-December, down from 7.7% in the previous quarter, reflecting a narrower growth margin compared to GDP.
Economists attribute this discrepancy to higher growth in government indirect taxes, possibly offset by reduced subsidies. The second estimate for FY24 places real GDP 30 bps higher at 7.6%, while real GVA remains unchanged at 6.9%.
Madhavi Arora, Lead Economist at Emkay Global Financial Services, notes that while nominal GDP growth for FY24 slightly exceeds the first estimate at 9.1%, it is 10% lower in value terms.
The implied Q4 GDP/GVA growth print is expected to slow to 5.9%/5.4%, indicating a significant portion of the growth moderation occurring in Q4. Despite this, production-side GVA growth tends to be less volatile, suggesting a likely normalization of the GDP-GVA wedge in the next fiscal year.
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FY25 GDP Projections:
Analysts Bullish as India’s Economic Resilience Shines
Following the remarkable Q3 GDP data, economists are reevaluating their forecasts for FY25, buoyed by India’s robust economic performance. UBS has raised its estimate for FY25 real GDP growth from 6.2% to 7%, citing the country’s resilience amidst challenges.
Tanvee Gupta Jain, UBS India Economist, highlights the nation’s impressive growth trajectory, attributing the upward revision to strong GDP expansion and positive indicators. She anticipates a gradual consumption recovery, particularly in premium and rural sectors, along with a broad-based investment rebound in FY25.
Kotak Institutional Equities economists foresee FY25 GDP growth at 6.6%, up from 6.3%, driven by sustained public and state-level capex, global growth patterns, and modest consumption trends. They project medium-term GDP growth to stabilize around 6.5%.
UBS suggests policy adjustments by the RBI, anticipating a shift to a “neutral” stance by June due to tightening conditions and global economic shifts. Barclays has also revised its FY24 and FY25 GDP forecasts upwards, reflecting growing confidence in India’s economic trajectory.
Analysts note India’s favorable economic conditions, including contained deficits and declining inflation, positioning the RBI for potential policy actions in FY25 to sustain growth momentum amid global monetary shifts.
Challenges in the Agricultural Sector
The farm sector faced a significant setback with a 0.8% contraction in GVA growth during Q3, projecting a meager 0.7% rise for the full year, compared to 4.7% in 2022-23. Chief Economic Advisor V. Anantha Nageswaran expressed optimism about the sector’s recovery in the coming year, noting that industrial growth had been a driving force in the current year’s expansion.
The acceleration in GVA growth owes much to three key sectors: construction, experiencing a notable 10.7% surge; manufacturing, rebounding with an 8.5% increase from a 2.2% decline in 2022-23; and mining, showing an 8.1% growth compared to 1.9% last year.
Q4 Growth Expected to Decline
D.K. Srivastava, Chief Policy Advisor at EY India, pointed out some unexpected trends that warrant further investigation. While GDP growth is being revised upward to 7.6%, GVA growth remains steady at 6.9%. Additionally, the average GDP growth for the first three quarters stands at 8.2%, suggesting that Q4 growth may only reach 5.9%.
India Ratings and Research economists Sunil Kumar Sinha and Paras Jasrai highlighted the presence of considerable noise in the data, evident in significant swings in discrepancy numbers both for the current and previous years. They also noted a downward revision in the growth of demand-side drivers, indicating continued weakness in consumption demand, particularly skewed towards items favored by higher-income households.
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