India's 7.6% GDP growth in Q2 boosts 6.5% growth projection for FY24

The higher than anticipated GDP growth of 7.6% in the second quarter of the fiscal has given significant upsides to the official growth projection of 6.5% for 2023-24 but concerns remain about lower private consumption, especially rural demand.  

“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).  

"The numbers impart a certain upside to the 6.5% growth projection for FY24. We will have to see how to rework it," said V Anantha Nageswaran, chief economic adviser while briefing reporters after the GDP estimates for the July to September 2023 quarter were released on Thursday.  

The finance ministry may bring the reworked GDP projections for the fiscal in its next Monthly Economic Review, he indicated.  

Official data released by the Ministry of Statistics and Programme Implementation revealed that the economy grew by 7.6% in the second quarter of the fiscal year after 7.8% growth in the first quarter. With this the GDP growth for the first half of the fiscal is at 7.7% year on year.   

The higher than anticipated growth was led by strong expansion in manufacturing and construction that grew by 13.9% and 13.3% respectively in the second quarter of the fiscal.  

Analysts also said the GDP growth estimate for the fiscal is likely to be revised upwards.  

"GDP growth for the second quarter has been very buoyant coming in at 7.6%. This was far beyond expectations. This will tend to push up estimate for full year by 0.1-0.2% points," said Madan Sabnavis, chief economist, Bank of Baroda.  

"Given the higher than forecast outcome for the second quarter, we are revising our FY2024 growth forecast to 6.2% from 6%," said Aditi Nayar, chief economist, head - research and outreach, ICRA.  

DK Joshi, chief economist, Crisil, however cautioned that economic growth is likely to slow down in the second half of the fiscal year.  

"We still expect growth to slow in the second half due to deepening global slowdown; the lagged impact of domestic rate hikes manifesting fully through the second half of this fiscal; and erratic weather and an El Niño event creating some downside to agricultural growth prospects," he noted. The advance estimates from Ministry of Agriculture peg kharif production at 4.6% lower than last year.  

Farm sector growth in the second quarter of the fiscal was disappointing at 1.2%.  

Sabnavis also highlighted it as a red flag and noted: "This is typically a less buoyant month for agriculture which will have lower output reflected in the third quarter. We need to see if rural demand revives in Q3 given state of kharif crop," he said.  

Experts also flagged slower growth in private final consumption expenditure as well as weak rural demand although the finance ministry remained confident that high frequency indicators continue to reflect robust demand conditions.  

"Festival demand has been high in October and November 2023. There is nothing to suggest that there is a sense of rural distress," the CEA said in response to questions, while noting that on a sequential basis, private final consumption expenditure grew by 2.5%.  

According to the data, private final consumption expenditure growth halved to 3.1% in the second quarter of the fiscal from 6% in the first quarter.  

"In our opinion, this is largely due to a weakness in rural demand and it is being reinforced by the low growth in the agricultural sector which has been pegged at 1.2% YoY," said Suman Chowdhury, Chief Economist and Head, Research, Acuité Ratings and Research.  

Significantly, the investment rate, measured as the nominal GFCF-to-GDP, inched up to 30.0% in Q2 FY2024 from 29.1% in the year-ago quarter. “This was the highest investment rate in any Q2 since Q2 FY2015,” Nayar highlighted.  

Meanwhile, gross fixed capital formation and government final consumption expenditure witnessed an uptick in growth to double digits in Q2 FY2024, export growth turned positive in the quarter.