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Surprise boost: Economy grows 7.6% in Q2, beating estimates

India’s economy expanded 7.6% in the September quarter from a year earlier, exceeding expectations as manufacturing posted strong growth and investments gathered pace. Private consumption was tepid while a patchy monsoon dented farm growth, according to government data released on Thursday.

Economists had, in an ET poll, estimated a median 6.7% rise in gross domestic product (GDP) in the quarter.

The second-quarter GDP growth is just shy of 7.8% clocked in the June quarter and significantly higher than the 6.2% recorded in the September quarter last year. Growth in the first half of FY24 was 7.7% compared with 9.5% a year earlier.

“Manufacturing sustained expansion, endorsed by IIP (Index of Industrial Production) and core infra sector growth,” said chief economic advisor V Anantha Nageswaran.

The higher-than-expected growth triggered a raft of upgrades in full FY24 growth estimates.

“The latest numbers indicate that the economic recovery is on track despite the adverse geopolitical situation,” said Sunil Kumar Sinha, principal economist, India Ratings. Manufacturing, which has a nearly 19% weight in the economy, posted a nine-quarter high 13.9% growth, as company profits improved on the back of strong demand and drop in input costs. The mining and construction sectors also posted strong growth, expanding 10% and 13.3%, respectively. Services growth was muted with financial services rising 6%, less than half the 12.2% growth in June quarter. Utilities grew 10.1% while trade, hotels, transport and communications grew 4.3%.The demand-side data showed gross fixed capital formation, a measure of investment, rose 11% from a year earlier compared with 8% in the first quarter, lifting it to 35.3% of GDP.

Private consumption
The investment rate at 30%, measured in nominal terms, was the highest for the second quarter since FY15.

“Investment is showing strong growth trend,” said Rajani Sinha, chief economist, CareEdge. “There could be some moderation in H2 as both government and private sector may restrain their capital spending ahead of the general elections.”

Private consumption grew a muted 3.1%, halving from 6% in the preceding quarter.

There was some moderation in consumption demand possibly due to the delayed festive season this year and weak rural demand, said Sinha.

The farm sector grew a modest 1.2% in the quarter, decelerating further from 3.5% in the preceding quarter.

The GDP growth number may persuade the Reserve Bank of India (RBI) to hold the policy rate at 6.5% for the fifth time in a row at the Monetary Policy Committee (MPC) meeting on December 6-8, continuing to prioritise inflation control.

FY24 boost
Economists lifted their FY24 estimates after the strong September quarter and resilient economic indicators in the current quarter.

“Given the higher than forecast outcome for Q2, we are revising our FY24 growth forecast to 6.2% from 6%,” said Aditi Nayar, chief economist, ICRA.

This is still shy of the RBI’s 6.5% growth forecast for FY24.

“GDP growth for Q2 has been very buoyant coming in at 7.6%. This was far beyond expectations,” said Madan Sabnavis, chief economist, Bank of Baroda. “This will tend to push up estimates for the full year by 0.1-0.2 percentage point.”

Rahul Bajoria of Barclays revised the growth forecast for FY24 to 6.7%.

Earlier this week, S&P Global Ratings revised India’s FY24 economic growth forecast to 6.4%, predicting robust domestic momentum.

The government is yet to revise its growth forecast from 6.5%.

“Will keep the FY24 growth forecast at 6.5% for now, will have to work out any upside to the projection, based on Q2 data,” CEA Nageswaran said.

“Monthly indicators show that Q3FY24 is off to a strong start with broad-based pick-up in consumption-oriented sectors, industrial activity and freight transportation services,” said Gaura Sengupta, economist, IDFC First Bank, projecting an upside to the FY24 number.


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