GDP blitzkrieg in FY24 keeps India ahead of its major-economy peers

Gross domestic product (GDP) for fiscal year 2024 expanded at a blistering 8.2%, ably supported by January-March quarter growth of 7.8%, according to data released on Friday by the ministry of statistics and programme implementation.

Both figures were significantly higher year-on-year (y-o-y) compared to FY23, when Q4 recorded 6.2% (revised), and full-year FY23 recorded GDP growth of 7%.

The push to GDP growth came from several key sectors including manufacturing, construction, mining and services sectors.

A Mint poll of 20 economists had thrown up a median of 7% for the fourth quarter and 7.9% for FY24.

Following the release of the latest GDP data, finance minister Nirmala Sitharaman tweeted on social platform X that many high-frequency indicators indicate that the Indian economy continues to remain resilient and buoyant despite global challenges.

“It is worthwhile to note that the manufacturing sector witnessed a significant growth of 9.9% in 2023-24, highlighting the success of the Modi government's efforts for the sector," she added.

Devendra Kumar Pant, chief economist at India Ratings and Research, said that although nominal GDP in FY24 is now lower (at ₹295.4 trillion) than that used in the FY25 budget preparation ( ₹296.6 trillion), the growth momentum is likely to lead to higher nominal GDP in FY25.

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“This along with an all-time high RBI dividend will help the government in realising higher receipts," said Pant. “The government may use it for any unforeseen expenditure or reduce the fiscal deficit from the 5.1% level in the FY25 interim budget. We expect the new government to pencil in fiscal deficit in FY25 lower than the level of 5.1% in the interim budget."

Also for FY25, experts said projections of a normal monsoon bodes well for agriculture output growth. Also, the government’s robust capital expenditure, strong investment demand, and upbeat consumer and business sentiment make the Indian economy resilient. However, they added that geopolitical tensions and the divergence of monetary easing paths of major central banks posed policy uncertainty.

Dissecting the growth data

According to the latest data, revised quarterly growth figures for FY23 stood at 12.8% (Q1), 5.5% (Q2), 4.3% (Q3) and 6.2% (Q4). The GDP growth for the first three quarters of FY 24 was also revised upwardly to 8.2%, 8.1% and 8.6%, respectively.

Throughout FY24, the gross value added (GVA)—which measures the value of goods and services produced in the economy—rose 7.2%, up from 6.7% the previous year. In comparison, net taxes rose 19.1% in FY24, up from 10.6% in the previous year.

In the four quarters of FY24, GVA rose by 8.3%, 7.7%, 6.8% and 6.3%. Meanwhile, the net taxes rose by 7.9%, 12.7%, 31.2, and 22.2% respectively during the period.

Experts said that upward revisions in GVA of previous quarters have pushed up the overall growth for FY24, while the divergence in GDP and GVA growth has continued with net taxes growing strongly by as much as 22% in Q4.

“It is essentially a continuation of the trends from Q3, FY24. The GDP numbers have surpassed consensus expectations yet again. The chasm between GDP and GVA (in Q4) remains very wide at 150 bps owing to subsidies," said Sachchidanand Shukla, group chief economist at Larsen & Toubro Ltd.

“It also shows up in the large 100 bps gap between the annual GDP and GVA numbers. However, most probably, this gap is likely to normalise from Q1 FY25 onwards. A broader story of sustained investment growth and subdued consumption along with flattish government expenditure continues," he added.

In the December quarter, the Indian economy had surpassed expectations, registering GDP growth of 8.4%, which dispelled concerns of a potential slowdown.

This surge was also driven by strong outputs in the manufacturing, electricity, and construction sectors, prompting the statistics ministry in February to adjust its growth projection for FY24 to 7.6%.

A key highlight of the FY24 data is a slight improvement in exports this year, which is helping to reduce the shock on account of negative net exports. Exports grew at 2.62% in rupee terms this fiscal from the year-ago period, while imports grew 10.95% annually, the latest data from the statistics ministry showed.

Where the growth came from

Growth in mining, manufacturing, construction and services sectors contributed to the overall economic growth in FY24. Manufacturing output grew at a robust 9.9% in FY24, although it comes on a low base, with FY23 manufacturing output contracting by over 2%.

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Interestingly, agriculture output growth faced less severe shock than was estimated. Farm output grew only at 1.4% in FY24 on account of erratic monsoons, higher than the 0.7% growth projected in February.

Production in agriculture forestry, livestock, and fishing stood at ₹23.05 trillion during FY24, up 1.45% annually. Mining, construction and services sectors grew 7.1%, 9.9% and 7.8%, respectively, during FY24.

The global perspective

India’s high growth figures come at a time when major global economies are facing slowing growth amid steep interest rates.

According to the IMF, the US economy is expected to grow at 2.7% in calendar year (CY) 2024, while the Eurozone and China are expected to grow at 0.8% and 5%, respectively, during the same period.

During FY24, the IMF expected the Indian economy to grow at 7.8%, while the Reserve Bank of India (RBI) had set the growth estimate at 7.6% for FY24.

Meanwhile, gross fixed capital formation, an indicator of investment, rose by about 9% on an annual basis in FY24.

The government's final consumption expenditure, representing its expenditure on goods and services, stood at ₹16.53 trillion during FY24, up 2.34% on an annual basis.

Household consumption or private final consumption expenditure saw a 4% growth in FY24 at ₹96.99 trillion.