India's success streak seen in sports and space programmes, seems to have extended to the economy, although mildly.
During April-June quarter, or Q1 of FY24, real GDP grew by 7.8% -- a four-quarter high. The rising services sector, higher domestic demand, and recovery in private investments kept the economy on the jump.
The Q1 GDP print, however, is lower than the RBI's estimate of 8%, but is in line with the consensus forecast of 7.8%-8.5%.
The first quarter's growth pace may keep the government in heavier spirits ahead of assembly elections, as other key economic indicators namely inflation, interest rates and unemployment rates continue to dispatch miserable prints.
Inflation in July surged to 7.44% -- the highest monthly rattle in 15 months -- while food inflation surged to 11.51%, a level last seen in October 2020. Likewise, India's unemployment rate remained high at 7.95% in July, according to CMIE data. Though the rural unemployment rate declined to 7.89% from 8.73%, there was a slight uptick in the urban unemployment rate at 8.06% from 7.87%.
Whether the first quarter GDP performance is a warm-up of what's to come this fiscal is unclear. There are several unfavourable elements like erratic monsoon, a decline in mining and manufacturing output, capex, private investments, and exports, besides external sector imbalances -- all of which are like the dreaded mother-in-law. One doesn't know when they will turn up and suppress growth in their wake.
That said, the latest growth print does turn India into a bit of a hero among all major economies, which are yet to spot the sparkle amid the greys. As if the news of a teetering Chinese economy wasn't enough, the latest data confirmed that the US economy indeed grew more slowly during the April-June quarter than previously estimated at an annualized 2.1%. In a further setback, the world's fourth-largest economy Germany too announced last week that its adjusted GDP contracted by 0.2% in Q2.
As the provisional estimates released Thursday show, in Q1, real GDP stood at Rs 40.37 lakh crore as against Rs 37.44 lakh crore a year ago. Nominal GDP grew by 8% at Rs 70.67 lakh crore vs Rs 65.42 lakh crore.
While the headline number is lower than the anticipated 8%, the sub-components are a mixed bag. Here's the overall sketch.
All the three broad metrics -- agriculture, industry and services -- registered growth, and may not be strictly compared with FY23 due to base effect. Agriculture sustained the trendline growth of 3.5% in Q1, FY24, and going further, analysts expect agriculture and allied activities to fare better in Q2, owing to better outcomes of the rabi harvest.
The services sector, the primary growth engine, found its way firmly back into the top spot clocking 10% growth over last year. As a percentage of GDP, its share stood at 66%, higher than the 62% share registered during Q1, FY23 and FY22. Construction activity turned in 7.9% growth during the quarter under review, perhaps a bit lower than its potential. A year before, it saw robust growth of 16%. Likewise, trade, hotels, transport and others, the biggest discretionary spending component saw a modest 9.2% growth as against 25.7% seen last year. This could be one area, where the government would like households to indulge a bit more.
As for industry, Q1 FY24 saw a growth rate of 4.6% over the previous year, leaving much to be desired. Mining, manufacturing and electricity output did improve, but the biggest setback is the contraction seen on a sequential basis, although Q4 and Q1 may not be entirely an apt comparison. The biggest worry is the uncertainty surrounding global commodity prices, and rising interest rates that could exert pressure on the profit margins and production volumes of producers.
On the expenditure side, private consumption needs to be fully awakened by a deafening whistle. While it grew by a modest 6% in the first quarter of the current fiscal, its percentage share to GDP reduced to 57.3% from 58% a year ago. All bets are now on the festive season spending of Q2 and Q3 to make up for the lost ground, as spending remains flat during Q4 typically. For instance, while private consumption remained weak in Q4 of FY23, the headline number for the full fiscal remained respectable.
Private investments are finally making some pleasing noises, but officials whisper that it's not punching above its weight. The first quarter of the current fiscal saw an 8% increase in investments over the previous year, though its percentage share to GDP remained flat at 34.7%. Though corporate announcements like Maruti Suzuki's Rs 45,000 crore investment pipeline are somewhat uplifting, the 34% decline in FDI inflows in Q1 at $10.94 billion neutralizes the momentum. Overall, private investments do need all the spirit and enthusiasm of ISRO's Vikram lander to slingshot its way from the passive orbit to the more aggressive, animal-spirits orbit.
All eyes will also be on government expenditure, which has been playing the role of a relief pitcher for a while now. In Q1, it contracted by 0.7% over last year, perhaps for the first time in recent years, while its percentage share to GDP fell to 10.1% from 11%. This is a significant departure from the centre's stated intent of frontloading expenditure in the first half of the fiscal for optimal output. The government did allocate a handsome capex for the current fiscal and given the election year, how it goes about its spending will be closely watched.
The other biggest setback was exports, which too contracted by a heart-sinking 8% in Q1, FY24 over the previous year.