The State Bank of India has revised its FY24 growth projection to 7 per cent from 6.7 per cent on the back of the strong growth numbers for Q2 FY24 released on Thursday.
India’s economy grew at 7.6% per cent in the July-September quarter as against 7.8% in the April-June quarter, showed government data on Thursday.
In the April-June quarter, the gross domestic product (GDP) growth was 6.2 per cent. The Reserve Bank of India (RBI) had projected a growth rate of 6.5% during Q2FY24.
According to a report by SBI Research, the GDP Q2 numbers are a harbinger of interesting times ahead and can reinvigorate the interests of global corporations, policymakers, investment gurus and fund managers.
The report noted that the economy grew by 7.6 per cent, better than consensus, in Q2 FY24 on the back of buoyant growth in manufacturing (at 13.9 per cent) and construction (13.3 per cent) while the GVA grew by 7.4 per cent. Nominal GDP grew by 9.1 per cent in Q1. Agriculture, the most consistent sector since the pandemic, grew by only 1.2 per cent in Q2 (18-quarters low). Industry grew by 9-quarters high to a whopping 13.2 per cent in Q2 as compared to 5.5 per cent in Q1.
The services sector was the only laggard and grew by only 5.8 per cent due to 10-quarters low growth of 4.3 per cent in ‘trade, hotels, transport, communication & services related to broadcasting’ sector.
On the expenditure side, PFCE growth decelerated to 3.1 per cent, perhaps reflecting the impact of higher inflation.
"Our optimism has been more than vindicated as we have been pencilling growth during the current FY sailing above RBI projection at 6.5 per cent for quite some time, despite the vagaries of climate and rain-induced asymmetry seeping in of late," the report said.
"With 7.7 per cent real GDP growth in H1 FY24, the overall growth for full fiscal would be around 7.0 per cent (assuming 6.2-6.4 per cent growth in H2). Though there are chances that it may cross the 7.0 per cent mark in FY24. Core GVA though registered a deceleration sequentially and grew by 8.4 per cent yoy in Q2 FY24 compared to 8.7 per cent yoy in Q1 FY24 but was much higher than 5.9 per cent yoy growth in Q2 FY23," it noted.
Nominal GDP growth came at 9.1 per cent y-o-y in Q2 FY24 compared to 8.0 per cent growth in Q1. Growth in GDP deflator accelerated to 1.4 per cent in Q2 FY24 from a low of 0.2 per cent in Q1 FY24, while it is way less that the FY23 growth numbers. The Q2 numbers are in line with deflation in WPI and easing of CPI inflation.
Manufacturing sector boost
The manufacturing sector, which for the past decade has accounted for just 17% of the economy, expanded 13.9% year-on-year in the September quarter, compared with a revised 4.7% in the previous three months, said Ministry of Statistics & Programme Implementation in a statement.
In its report, SBI said in Q2FY24, India’s manufacturing sector grew at a robust pace of 13.9 per cent, compared to 4.7 per cent in Q1FY24 and –3.8 per cent in Q2FY23. The contribution of manufacturing sector reached to 9-quarter high of 2.5 per cent in Q4, compared to –0.7 and –0.2 per cent in Q2 & Q3 FY23, respectively.
The SBI Ecowrap noted there are many reasons for the increase in manufacturing growth but the Government’s PLI scheme, which targets 14-sectors, is one of them.
"PLI Schemes have transformed India’s exports basket from traditional commodities to high value-added products such as electronics & telecommunication goods, processed food products etc. Though, China continues to be the world’s largest production hub, but tariff conflicts, stop-and-start economic pressures, and soaring labour costs are slowly chipping away at the country’s dominant market position," the report noted.
Q2 FY24 numbers
Reacting to the FY24 GDP numbers, PM Modi said GDP growth numbers for Q2 display resilience and strength of economy.
“The GDP growth numbers for Q2 display the resilience and strength of the Indian economy in the midst of such testing times globally. We are committed to ensuring fast paced growth to create more opportunities, rapid eradication of poverty and improving ‘Ease Of Living’ for our people,” Prime Minister Narendra Modi said on X (formerly known as Twitter).
"Q2 FY24 GDP growth was higher than estimated at 7.6 per cent (Emkay: 7.3 per cent; Consensus: 6.8 per cent), while GVA grew 7.4 per cent led by a boom in manufacturing and construction, even as services growth slowed. Industry growth shot up to 10% YoY, with sharply higher manufacturing (13.9 per cent vs 4.7 per cent prior) and construction (13.3 per cent vs 7.9 per cent prior). Manufacturing contribution more than doubled in Q2 and it alone accounted for ~33% of GVA growth -- helped by high profit growth during the quarter," said Madhavi Arora, Economist, Emkay Global Financial Services Ltd.
Last week, in its Ecowrap report, SBI had said that GDP is likely to be around 6.9-7.1 per cent in the Q2FY24. "Domestic economic activity in Q2 has been supported by robust agricultural performance, sustained buoyancy in services, strong capital expenditure by centre (49 per cent of budgeted) and states (32 per cent of budgeted) and a robust pick up in consumption expenditure," SBI noted last week.