India's latest GDP numbers cement its position as the world's fastest growing major economy

The feel-good cheer, however, ends with headline number as the sub-components of GDP made uneven contributions.
For representational purposes (Express Illustrations | Amiit Bandre)
For representational purposes (Express Illustrations | Amiit Bandre)

It was indeed a surprise. India's Q2 GDP growth rate printed on the upside at 7.6%, as briefed in advance both by the government and the RBI.

The final number hit it out of the park, well clear of the consensus projection of 6.5-6.8%. However, sequentially, it represented a deceleration as it was 20 bps lower than Q1's 7.8%.

A 7%-plus growth rate for two successive quarters, amid global headwinds and high inflation, appears to be the surest sign of India’s economic heartbeat regaining its rhythm.

The feel-good cheer, however, ends with headline number as the sub-components of GDP made uneven contributions. Once again, it's the government expenditure that injected the much-needed economic glucose, clocking a growth of 12.35% during Q2.

Offering some solace, private investments, the missing piece in India's growth recovery, seems to have finally warmed up to its role as a willful wingman. In Q2, it saw a decent double-digit growth at 11%. Private consumption could only turn up a weak 3.1% increase over last year and barely 2% rise on a sequential basis. But the dismal growth in consumption is hardly a surprise as higher retail inflation, compared with Q1, and rising interest rates squeezed household budgets.

In terms of absolute numbers, real GDP stood at Rs 41.74 lakh crore in Q2, as against Rs 38.78 lakh crore a year before, going by the provisional estimates released on Thursday. With this, for the first half of FY24, real GDP printed at Rs 82.11 lakh crore compared to Rs 76.22 lakh crore in H1, FY22, translating to growth of 7.7%.

The biggest drag was the anemic 1.2% growth seen in agriculture and allied services, thanks to an erratic monsoon that delayed sowing activity. It also explains the weak recovery in rural demand consumption. In fact, uneven rainfall, which could dent rural demand further, is seen as one of the downside risks for growth for the back half of the fiscal. A possible slowdown in government capex, weak external demand and the cumulative impact of monetary tightening are other factors that could further worsen India's growth prospects.

Meanwhile, industry and services sectors maintained their momentum, making up for the slack in agricultural sector output.

In a significant turnaround of sorts, both mining and manufacturing registered double digit growth of 10% and 13.9% respectively during Q2. Both were in negative territory just a year before. Likewise, electricity and utility services, and construction clocked robust growth of 10.1% and 13.3% respectively -- several notches above the rates seen during the past year. The happy-hour growth in the services sector, however, ended there as other components within the sector – namely trade, hotels, transport, financial, real estate and public administration – all came up with single-digit growth.

In particular, trade, hotels and transport -- the segments that dominate the domestic services demand -- saw the weakest growth of 4.3% during Q2, as against a healthy 15.6% growth in Q2 last year. Clearly, the specter of price rise and interest rates hikes took a toll on the households' discretionary spending.

On the expenditure side, investment activity remained robust in Q2 at Rs 14.71 lakh crore. However, on a sequential basis, growth stood at a modest 5%. Ditto with government expenditure that rose over last year, but contracted on a sequential basis.  
With this, the first half of FY24 clocked a GDP growth rate of 7.7%. If we manage to get the RBI-projected 6% and 5.7% growth in Q3 and Q4 respectively, we will be on course for 6.8% growth for the full fiscal FY24, outpacing most other economies. In this context, India continues to be a bright spot, given the risk of recession that hangs over Western countries and the slowdown seen in China.

The Indian economy seems to be firmly on the path of recovery, which is reflected in two aspects: The first is the frequent revision in professional estimates, which is starting to rival the growth of the human baby – known to outgrow seven clothing sizes in two years.

The second is the stark contrast in the nature of revisions. If last year around this time, RBI and other forecasters were busy paring down growth estimates, citing an 'uncertain and fragile global economic environment.' This year, the revisions have been on the upside. For instance, RBI's September Survey of professional forecasters pegged the median forecast at 6.3% for Q2. It was raised to 6.5% in October, while the monthly bulletin in November further raised it to 6.8%.

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