India's GDP blitz at 7.6% in Q2 lays ground for FY24 show, beats estimates
Summary
- Mining, manufacturing, construction fuel Q2; core sector grows 12% in Oct
NEW DELHI : The Indian economy shot past expectations to clock an impressive 7.6% growth in the September quarter, retaining its crown as the world’s fastest-growing major economy. That’s a major step-up from 6.3% in the corresponding period of the previous fiscal year.
While manufacturing, mining and construction put up a robust show, agriculture cooled thanks to an erratic monsoon, National Statistical Office (NSO) data showed. The quarter saw double-digit growth in fixed investments and government spending, while household consumption rose marginally.
A Mint poll of 18 economists had estimated the gross domestic product (GDP) growth to be about 6.8% in the quarter.
The Indian economy expanded at 7.8% in the first quarter of the current fiscal year. The Reserve Bank of India’s (RBI) forecast for 2023-24 is 6.5%, while others like investment bank Goldman Sachs see a more sedate 6.2% growth.
Separately, the output data for eight core sector industries showed an increase of 12.1% in October against the previous year’s 0.7%, setting the stage for continued momentum in the December quarter as well.
With the 7.6% GDP growth in real terms in the September quarter, India is now comfortably set to achieve 6.5% growth in the current fiscal, chief economic advisor Anantha Nageswaran said. “We are more comfortable with 6.5% growth forecast for FY24 now," Nageswaran said at a briefing after the second quarter GDP figures were released by the statistics ministry.
India’s growth figures come at a time when major global economies are facing slowing growth and steep interest rates. The International Monetary Fund (IMF) has predicted that the Indian economy will outperform Indonesia (4.93%), China (4.9%), the US (2.93%), Japan (1.2%), France (0.69%), the UK (0.62%) and Germany (-0.37%) in the September quarter.
“After a strong growth of 7.8% in the first quarter, the second quarter, too, surprised on the upside with 7.6% growth. This takes the first half GDP growth to a robust 7.7%. However, we still expect growth to slow in the second half due to the deepening global slowdown; the lagged impact of domestic rate hikes manifesting fully through the second half of this fiscal; and erratic weather and an El Niño event creating some downside to agricultural growth prospects," said Dharmakirti Joshi, chief economist, Crisil Ltd.
“Advance estimates from the ministry of agriculture peg kharif production at 4.6% lower than last year. Despite moderation in the second half, India is expected to outperform other large economies this fiscal year," he added.
The manufacturing sector, which accounts for about 17% of the economy, expanded 13.9% year-on-year in the September quarter, compared with a revised 4.7% expansion in the preceding three months. However, the high growth comes on the back of a low base the previous year.
The agriculture sector recorded a 1.2% growth in the September quarter this fiscal, down from 2.5% the previous year, due to uneven monsoon in parts of the country.
Gross fixed capital formation, an indicator of investment, picked up pace at 11% on an annual basis in the September quarter.
The government final consumption expenditure stood at ₹3.74 trillion during Q2, up from ₹3.32 trillion from the same period of the previous year, registering a 12.65% rise on an annual basis. Household consumption or private final consumption expenditure saw a 3% growth in the September quarter.
During the quarter, the share of exports in GDP rose to 23.2%, up from 20.9% in the June quarter.
“On the demand side, while gross fixed capital formation (GFCF) and government final consumption expenditure (GFCE) witnessed double-digit growth in September quarter of FY24, private final consumption expenditure (PFCE) recorded a muted growth," India Ratings & Research said in a statement.
The rating agency said the current consumption demand is skewed towards goods and services consumed largely by richer urban households.
The second quarter growth of 7.6% is more optimistic than private forecasts, Nageswaran said, adding the economy has maintained momentum after its recovery from the pandemic.
“By and large, rural demand is steady even if it is not spectacular... Private sector capital is not an aircraft waiting to take off, but an aircraft already in flight," Nageswaran said.
The chief economic advisor also pointed out that the tax buoyancy of the current financial year including both direct and indirect taxes is 16.3%, compared to nominal GDP growth of 8.6%, translating to a tax buoyancy of 1.9.
The government’s fiscal management is on track, Nageswaran said, adding the government may look at the possibility of an upward revision in the full year growth prospects in light of the 7.6% second quarter growth.
The sharp upside surprise to the September quarter GDP figures is a welcome sign, especially as it comes in the backdrop of a broadbased pick-up across most non-agricultural sectors, said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank.
“We, however, expect the H2 (Oct 2023-March2024 period) growth to moderate. Having said that, the full-year GDP numbers have got a big fillip after todays’ figures," Bhardwaj added.
Separately, the growth of eight core infrastructure sectors rose to 12.1% in October, compared to 0.7% a year ago on account of a double-digit increase in the production of coal, cement, electricity and steel, commerce ministry data showed. After facing a decline in month-on-month growth, it has increased from 9.2% in September to 12.1% in October.
The output numbers assume significance as the eight core sectors—coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity -- contribute 40.27% to the Index of Industrial Production (IIP).
Year-on-year, the growth of the core sector recorded a marginal rise of 20 basis points to 8.6% in the seven months (April-October) of FY24, which was 8.4% a year earlier.
Coal output rose by 18.4%, the highest in the past 12 months, on account of a surge in thermal power generation. In the corresponding month of the previous fiscal, coal output rose 3.8%. Cement production rose to 17.1%, which was negative at 4.2% a year earlier. The rise in cement production indicates increasing construction activity.
Steel production jumped 11% against 5.8% in October 2022. The growth in steel output is reflective of higher demand conditions. Electricity generation rose 20.3%, against 1.2% last year.
Output of crude oil and natural gas increased by 1.3% and 9.9% respectively against a negative growth of 2.2% and 4.2% a year before.
Refinery products production stood at 4.2% as against (-) 3.1% in October 2022. Fertilizer production growth stood at 5.3% against 5.4% a year ago.
A commerce ministry statement said the final growth rate of the index of eight core industries for July 2023 is revised to 8.5%. The released output data is provisional.
The core sector growth is attributed to low base due to higher number of holidays amid the earlier onset of the festive season in 2022 vis-à-vis 2023.
“The mining and electricity sectors have grown at 18.4% and 20.3%, respectively, aided also by the low base effect. Higher power growth indicates good economic activity supported by the coal sector," said Madan Sabnavis, chief economist, Bank of Baroda.
“The continued double-digit growth in steel and cement sectors indicates a favourable progress in the construction activity in the country. Rest of the sectors namely crude oil, refinery products and fertilisers grew in the range of 1.3-5.3% yoy in the same period, said Sunil Kumar Sinha, principal economist (public finance), India Ratings and Research.
Gireesh Chandra Prasad contributed to this story.
