Despite a tangible growth downturn in the farm and services sectors as well as consumer spending, India’s Gross Domestic Product (GDP) grew at a higher-than-expected 7.6% in the July to September 2023 quarter, as per initial estimates from the National Statistical Office.
The second quarter (Q2) growth was slightly lower than the 7.8% rise in the previous quarter, but well over the central bank’s projected uptick of 6.5%. Growth in the Gross Value Added (GVA) in the economy eased slight to 7.4% in the second quarter (Q2) of 2023-24, from 7.6% in Q1. But the GVA growth in the farm sector skidded sharply to just 1.2% from 3.5% in Q1 while it more than halved for services sectors such as trade, hotels and transport from 9.2% in Q1 to 4.3%.
The first half of 2023-24 has thus provisionally recorded a 7.7% growth in GDP, with the GVA rising 7.6%, led by a 10.5% growth in construction and 9.3% uptick in manufacturing. While growth is expected to moderate in the second half of the year, economists expect the strong first half numbers to lift the full year performance by 0.1% to 0.2% over current projections.
The Reserve Bank of India (RBI) and the government expect GDP to grow 6.5% this year. “Considering that the RBI expects Q3 and Q4 GDP growth at 6% and 5.7%, respectively, the annual growth is estimated at 6.7%,” said EY India chief policy adviser D.K. Srivastava, who attributed the buoyant first half growth “largely” to government spends dominated by front-loaded capex.
Manufacturing GVA which had shrunk almost 4% in Q2 of last year when the overall GVA grew 5.4%, recorded the fastest uptick in nine quarters to rise 13.9% between July and September. Mining GVA also jumped 10%, thanks to favourable base effects from a contraction last year.
Construction GVA jumped 13.3% this Q2, while electricity, gas, water supply and other utility services added 10.1% over last year’s performance, to lift the overall growth numbers, even as private final consumption expenditure (PFCE) tanked sequentially as well as year-on-year.
PFCE growth halved
The share of PFCE, which indicates consumer spending, in the GDP was 56.8% in Q2, the NSO estimated, vis-a-vis 59.3% in the same quarter of 2022-23 and 57.3% in Q1 of this year. PFCE growth halved to 3.1% from 6% in Q1, partly reflecting the weakness in rural demand, ICRA chief economist Aditi Nayar noted.
Government capex lifted the investment rate to 30%, which Ms. Nayar said, was the highest for any second quarter since 2014-15.
Financial, real estate and professional services GVA growth halved from 12.2% in Q1 to 6%, while GVA from public administration, defence and other services moderated slightly from 7.9% in the preceding quarter to 7.6% in Q2.
“We expect growth to slow in the second half due to 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 Crisil chief economist Dharmakirti Joshi.
Advance estimates from the Agriculture Ministry peg Kharif production at 4.6% lower than last year, he pointed out.
