MUMBAI: Benefitting from increased government spending, which had slumped in the first half of the fiscal, pulling down growth to a low 6%, the economy is likely to log in 6.4% in the third quarter, according to an early estimate by a rating agency.
According to Icra Ratings, even at 6.4%, the pace of growth expansion is likely to remain below Q1 levels, when the economy had printed in at 6.7% which was still a way lower than the year-ago period when it had clocked 8.2%.
Aditi Nayar, the chief economist at the agency said Tuesday however, that the rise in GDP will continue to trail GVA growth for the third quarter in a row. “We see GDP expansion to reach 6.4% in Q3 up from the seven-quarter low of 5.4% in Q2, benefitting from enhanced government spending amid uneven consumption.
But gross value added (GVA) growth is likely to be relatively broad-based improvement to 6.6% in Q3 from 5.6% in Q2 , driven by the industrial (6.2% from 3.6%), services (7.7% from 7.1%), and agricultural (4% from 3.5%) sectors,” she said. The slump in the first half was primarily due to lower government spends due to the Parliamentary election due to model code of conduct, and also due to the heat waves.
She estimates that growth in net indirect taxes (in nominal terms) eased significantly to low single digits in Q3 from 7.9% in Q2 , owing to a sharp, albeit base effect-led increase in subsidies by the Centre (to 31.1% in Q3 from 4.3% in Q2; but lower 53.6% in Q3 FY24).
As a result, GDP expansion will continue to trail the GVA for the third quarter in a row, with a similar trend expected in the full year as well. Nayar the economic performance in Q3 has benefitted from a sharp ramp-up in aggregate government spending on capital and revenue expenditures, high growth in services exports, a turnaround in merchandise exports, healthy output of major kharif crops etc, which would have buffered rural sentiment.
Some consumer-focused sectors saw a pick-up during the festive season, even as urban consumer sentiment dipped slightly, and other sectors such as mining and electricity saw an improvement after weather-related challenges in the previous quarter.
Overall, while we expect the pace of GDP and GVA expansion to rise in Q3 relative to Q2, the performance may remain inferior to the NSO’s initial estimates for Q1, she added.
The annual expansion in Central capex has surged to a six-quarter high of 47.7% in Q3 from 10.3% in Q2 . Moreover, the increase in the aggregate capital outlay and net lending of 24 states (excluding Arunachal , Bihar, Goa, and Manipur), for which the latest data is available, rose to 9.9% in Q3 from 7% in Q2 .