India's GDP growth accelerates to one-year high of 7.8% in Q1FY24

India’s economy grew at its fastest pace in a year in the April-June quarter, showed the National Statistical Data (NSO) released on Thursday.

India’s gross domestic product (GDP) grew 7.8% in the past quarter, up from 6.1% growth in the previous quarter and 13.1% in April-June 2022. Reserve Bank of India (RBI) had predicted a growth rate of 8%.

India remains the fastest-growing major economy as China's GDP growth in the April-June quarter was 6.3%.

As per the NSO data, the agriculture sector recorded a 3.5% growth, up from 2.4% in the April-June quarter of 2022-23.

However, the growth in the manufacturing sector decelerated to 4.7% in the first quarter of the current fiscal compared to 6.1% in the year-ago period.

The growth in GDP during the January-March quarter of 2022-23 was 6.1% and 4.5% in October-December.

"The economy's growth at 7.8% in Q1FY24 was amongst the fastest versus its regional peers, benefitting by a sharp jump in the government capex expenditure, firm services momentum and better consumption, besides a favourable base. External trade was in a soft spot, reflecting the impact of weak global forces. A strong growth print provides the room for the RBI to be focused on anchoring inflationary expectations," Radhika Rao, senior economist, DBS Bank, Singapore told Reuters.

Private consumption, which accounts for nearly 60% of the economy, grew about 6% year on year, up from 2.8% in the previous quarter.

However, growth in capital formation, an indicator of investment, eased to about 8% year on year from 8.9% in the previous three months.

Services sector growth was helped by brisk activity in financial services, trade, hotels and transport sectors.

"While the April-June quarter growth print is in line with our expectations, the growth mix was a bit of a surprise. Ideally, the Y/Y fall in commodity prices should have boosted manufacturing firms' operating profits and thereby lifted the value-added-growth of manufacturing sector. Thus, the disappointment on that front was surprising.

"On the other hand, strong government capex and credit growth expectedly led to double-digit construction sector growth and financial services growth respectively. While we retain our FY24E GDP growth at sub 6%, we recognise economic activity recovery is not yet broad-based," Madhavi Arora, lead economist, Emkay Global told Reuters.

Chief Economic Advisor V Anantha Nageswaran on Thursday said the economy is expected to grow at 6.5% in the current fiscal notwithstanding deficient monsoon rains.

He also said that there is no real cause for concern that inflation would spike out of control as both the government and the Reserve Bank are taking adequate steps to maintain supply and keep prices under check.

The CEA said food inflation is likely to subside with the arrival of fresh stock and government measures. However, the impact of deficient rains in August is to be watched.

''There is momentum in economic activity in general and it is not driven by price-related distortions. Therefore our projections still are very comfortably placed at 6.5% for the current financial year,'' he said.

Risk is evenly distributed to around 6.5% growth projection for FY2023-24, he said while briefing media following the release of first quarter GDP numbers. Rising crude prices may warrant attention and prolonged geopolitical uncertainty and likely tighter financial conditions can pose risk to growth, he added.

With regard to fiscal deficit, Nageswaran said there is no threat to 5.9% fiscal deficit announced in the Budget.

With inputs from agencies