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India’s Q3 GDP bucks all estimates at 8.4% growth

By, New Delhi
Feb 29, 2024 11:30 PM IST

GDP growth in the quarter ending December 2023 is 8.4%, almost two percentage points more than the 6.6% number predicted by a Bloomberg poll of economists

The Indian economy continued to outperform, with GDP growth in the quarter ending December coming in at 8.4%, beating analyst estimates by around 180 basis points or 1.8 percentage points, and the government now expects the economy to grow by 7.6% in 2023-24, up from the 7.3% projected in January.

In terms of a sectoral growth performance, manufacturing and construction are among the best performers with annual growth rate of 8.5% and 10.7% respectively. (REUTERS/ FILE)
In terms of a sectoral growth performance, manufacturing and construction are among the best performers with annual growth rate of 8.5% and 10.7% respectively. (REUTERS/ FILE)

The numbers, which will force economists and analysts to question whether they seriously underestimated the momentum in India’s economy, were released by the National Statistical Office (NSO) on Thursday, although a closer reading does point to some concerns over the tepid growth in consumption spending, one of the pillars of GDP.

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GDP growth in the quarter ending December 2023 is 8.4%, almost two percentage points more than the 6.6% number predicted by a Bloomberg poll of economists. And GDP growth in the quarters ending June and September 2023 now stands at 8.2% and 8.1% respectively, instead of the 7.8% and 7.6% when the September quarter numbers were released on November 30, 2023. In terms of a sectoral growth performance, manufacturing and construction are among the best performers with annual growth rate of 8.5% and 10.7% respectively.

“The actual performance of the economy has continued to defy expectations and do better than what many had projected, underscoring the fact that a structural transformation of the economy is indeed underway, both in terms of physical infrastructure and digital infrastructure as well as inclusion agenda boosting the purchasing power of Indian households,” chief economic adviser V Anantha Nageswaran said, citing estimates of various agencies, such as ADB (6.7% for FY24), IMF (6.7%) and Fitch (6.9%). “So that is the case for many agencies to re-appraise their estimate of potential GDP growth in India to closer to 7% if not above. And let’s also remember that the central bank, Reserve Bank of India, is projecting 7% GDP growth for FY25 as well,” he added.

The latest GDP numbers only strengthen India’s relative advantage vis-à-vis other major economies in the world in terms of growth.

“Robust 8.4% GDP growth in Q3 2023-24 shows the strength of Indian economy and its potential. Our efforts will continue to bring fast economic growth which shall help 140 crore (1.4 billion) Indians lead a better life and create a Viksit Bharat!” PM Narendra Modi said in a post on X.

In retrospect, the numbers also buttress the views of Monetary Policy Committee (MPC) member Prof Jayanth R Varma, who argued in the February MPC meeting against the growth-pessimism of the majority of the MPC. “Perhaps, the majority of the MPC worry that the output gap has already closed, and that the projected growth rate of 7% for 2024-25 exceeds the growth potential of the Indian economy. I do not think that such growth pessimism is warranted… If the potential growth rate of the economy is close to 8%, then the economy is not at risk of overheating in 2024-25”, the MPC minutes released on February 22 quoted Varma as saying in the meeting held between February 6 to 8.

“Today’s print suggests growth is moving faster than expected by RBI, which means the central bank will see little urgency to cut rates while the MPC awaits for comfort on headline inflation. In our view, four members of the MPC remain hawkish as per the February meeting and solid growth will buy them more time to wait and watch data on inflation, especially on food,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays, said in a note. “We expect the steady domestic growth momentum to continue, supported by continued increases in government capex, much anticipated rising private investment and monetary easing,” he added.

These favourable observations notwithstanding, a slightly detailed look at latest and revised GDP numbers released on Thursday raises some interesting questions. Along with quarterly GDP numbers and Second Advance Estimates of GDP for 2023-24, NSO has also replaced First Revised Estimates of 2021-22 GDP with Second Revised Estimates and the Provisional Estimates of 2022-23 GDP with First Revised Estimates in its latest release on GDP numbers. As a result of these revisions, GDP growth in 2022-23 now stands at 7% instead of 7.2% according to the GDP data released in January 2024. Clearly, these revisions have played a role in the tweak in the headline GDP growth number and its components for 2023-24.

Given the fact that GDP numbers for 2021-22 and 2022-23 have also changed between the First Advance Estimates and Second Advance Estimates for 2023-24 GDP, a better question to ask is how has the Indian economy grown between 2021-22 and 2023-24 in the January and February sets of numbers released this year.

GDP growth over this two-year period has remained unchanged at 15.1% in both sets of numbers. However, a look at some key disaggregates offers some interesting insights. Growth in Gross Value Added (GVA) between 2021-22 and 2023-24 between the January 2024 and February 2024 numbers has come down from 14.4% to 14.1%. The reason why GDP growth has remained unchanged is an increase in growth of the Net Taxes head – GDP is the sum of GVA and Net Taxes – from 23.8% to 27.7% in the January and February numbers. This could be a result of higher growth in taxes or lower spending on subsidies. Two-year growth in Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) also shows a fall in the January and February numbers. PFCE growth fell from 12.3% to 10% in the January and February data while GFCF growth fell from 22.9% to 17.5% in the January and February data. Government Final Consumption Expenditure (GFCE) growth, on the other hand, shows a sharp increase in growth between 2021-22 and 2023-24 from 4.2% to 12.3% in the January and February numbers.

Comparison of sector-wise aggregates of GVA shows similar results. All major subsectors except Financial, Real Estate & Professional Services and Public Administration, Defence & Other Services show a fall in two-year growth between 2021-22 and 2023-24 in the Second Advance Estimates released on Thursday compared to what was shown in the First Advance Estimates released in January. The biggest downward revision in proportional terms during this two year period is for manufacturing, which has seen its two-year growth being revised from 8% in the January data to 6.1% in the February data. In fact, manufacturing has seen its 1.3% annual growth in 2022-23 in the First Advance Estimates being changed to a 2.2% contraction after the revised 2021-22 and 2022-23 GDP numbers released along with the Second Advance Estimates for 2023-24.

The macroeconomic essence of these two-year GDP/GVA growth comparisons shows that both private consumption (PFCE) and capital formation (GFCF) have grown at a slower pace over the two-year period than what was believed earlier and the economy has thrived on spending and taxes from white-collar private employees (they dominate the financial services sector) and government employees.

In fact, annual growth in PFCE in 2023-24, as per the Second Advance Estimates, is expected to be just 3% compared to 4.4% in the First Advance Estimates released in January. If the pandemic-induced contraction in 2020-21 is excluded, PFCE growth in 2023-24 is the lowest since the 2.87% annual growth in PFCE growth in 2002-03. India experienced one of its worst ever droughts in 2002. That PFCE growth should come close to what was seen a severe drought year in a normal year when anecdotal accounts suggest a sharp consumption boom among the rich, suggests a problem as far as demand in the rest of the economy is concerned.

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  • ABOUT THE AUTHOR
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    Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday.

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