India’s GDP growth likely slowed to 6.6% in Q3: Mint poll

The GDP data for the quarter ended December is scheduled to be released on 29 February.
The GDP data for the quarter ended December is scheduled to be released on 29 February.

Summary

  • The slowdown is expected mainly on account of a weakening in the government’s capital expenditure impetus, muted growth in industrial output, and the effects of an uneven monsoon on agriculture

New Delhi: Several factors including a weakening in the government’s capital expenditure impetus, muted industrial output growth, and an uneven monsoon may have slowed down India’s economic growth in the third quarter (October-December) of FY24.

Median estimates of 17 economists polled by Mint showed that GDP growth is likely to be 6.6% in Q3, lower than the 7.6% reported in the previous quarter by the statistics ministry.

The official GDP data for Q3 is scheduled to be released on Thursday. Should GDP growth come in as projected by Mint, it would be roughly in line with the 6.5% predicted by the Reserve Bank of India (RBI) in December.

The central bank expects growth to slow further to 6% in January-March, with full-year growth for 2023-24 projected at 7%. However, the government’s first advance estimate for 2023-24 given in January was higher, at 7.3%, which could also undergo a revision in the upcoming release.

“Lower volume growth for the industrial sector, flagging momentum in certain indicators of investment activity, a slowdown in government expenditure and an uneven monsoon are expected to dampen the GDP growth in December quarter," said Aditi Nayar, chief economist at ICRA, in a release last week.

Official data from the government show that industrial output growth had slowed to 5.8% in Q3 from 7.8% in Q2, while the year-on-year growth in the Centre’s capital expenditure slid to 24.4% in Q3, compared to 26.4% in July-September and 59.1% in April-June.

Sujan Hajra, chief economist and executive director at Anand Rathi Shares and Stock Brokers, agreed that industry and investments are expected to experience deceleration in the December quarter, but also highlighted a positive outlook for the services sector.

“Services activities and private consumption are predicted to show comparatively stronger performance. Overall, for the entire year, we forecast India’s growth at around 7%, positioning it as the strongest performer among the world’s major economies," Hajra said.

While exports remained weak due to geopolitical factors such as the attacks by Yemen-linked militants in the Red Sea, strong services exports are expected to offset some of the impact of sluggish merchandise exports, according to Barclays. 

Merchandise exports grew just 1.1% year-on-year in the October-December quarter. This, however, was better than the 3% contraction seen in the previous quarter, data from the commerce ministry showed.

Even as growth is expected to slow down from better-than-expected performance in the first half of 2023-24, it is still likely to stand out at a time when developed economies are facing recession, or risks of recession. This, however, may delay the prospects of an interest rate cut despite inflation softening in recent months.

"With growth holding up and expectations of easing by the US Fed pushed back, there may be a risk for a delay in the first rate cut," Barclays, which does not expect a rate cut before June, added.

 

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