Surpassing the analysts’ expectations of 6.6 per cent, India’s economy grew 8.4 per cent during the October-December quarter.
However, gross value added (GVA), which is a measure of the total value of goods and services produced in the economy and excludes indirect taxes and subsidies, grew 6.5 per cent, prompting economists to say that GDP data overstated growth trends.
“The wide divergence between the GVA and GDP in the October-December quarter was mainly due to a sharp fall in subsidies in that quarter largely because of lower payouts on fertilizer subsidies like Urea,” reported Reuters, citing a senior government official.
“The above-8 per cent real GDP print should be read with caution given the large gap with GVA, decline in agriculture activity and two-paced economic growth (investment far outpacing consumption),” Reuters quoted Citi economist Samiran Chakraborty as saying in a note.
The divergence was at a 10-year high, said Neelkanth Mishra, chief economist at Axis Bank, who does not expect this to continue and sees the economy growing 6.5 per cent in the next financial year.India’s GDP growth is estimated at 7.6 per cent for the year ending March 31, 2024.Q3 GDP at a glance
Indian industries fared well in the December quarter, with manufacturing and construction growing 11.6 per cent YoY and 9.5 per cent YoY respectively, reflecting the public capex support push.
The services sector too fared well, with recovery seen in the Trade, Hotel, Transport, and Communication segments, in addition to Financial, Real Estate, and Professional Services.
However, in line with the narrative, private consumption growth in India leaves much to be desired, having grown 3.5 per cent in Q3.
“Although a pickup in private consumption was anticipated, owing to the festive season buoyancy that proxy indicators had pointed towards, the extent of upside was underwhelming for sure,” news agency Reuters reported Yuvika Singhal, an economist at QuantEco Research as saying.
Interestingly, the government’s spending declined sharply as it contracted 3.2 per cent in Q3FY24, having grown 13.8 per cent in Q2.
Gross Fixed Capital Formation (GFCF), or fixed investment, continued to drive growth, up 10.6 per cent in Q3. The reading in Q2 stood at 11.6 per cent. Monsoon disappointment meant that agriculture GVA growth contracted 0.8 per cent in Q3, down from 1.6 per cent in Q2.
Economists at Nomura have said that India’s economic growth will continue to remain resilient. However, if one considers ‘core GDP’, which is GDP excluding valuables, discrepancies and inventories (volatile components), then India’s underlying growth has in effect slowed to 4 per cent in Q3 from 4.7 per cent in Q2.
“The Q4 GDP growth reading, while superlative, should not be interpreted as evidence of strong growth. The moderation in core GDP growth and in GVA growth suggests growth remains uneven,” wrote Sonal Varma and Aurodeep Nandi, economists at Nomura in a note.
They note that the Indian economy continues to be primarily supported by strong public capex growth, while private consumption and private capex remain subdued.
“The sustainability of investment growth in the medium-term hinges significantly on the imperative need to strengthen consumption growth. The escalation of global geopolitical tensions and slowing external demand can further add to the downside risks to external sector,” said Rajani Sinha, Chief Economist at CareEdge.
