India's GDP Grows 8.4% In Q3 Surpassing Estimates; Full-Year Growth Pegged At 7.6%

India's economy grew better than expected in the third quarter of FY24, boosted by a jump in mining, manufacturing and construction activities.

The gross domestic product grew 8.4% over a year earlier in the October-December quarter, according to the latest estimates released by the government's statistical agency. Gross value added, which strips out indirect tax and subsidies, is estimated to have grown 6.5%.

A Bloomberg poll of economists pegged GDP to grow 6.6% in the October–December period. GVA was expected to expand 6.4%.

The divergence was on account of net indirect taxes.

In our view, it may be more appropriate to look at the trend in GVA growth to understand the underlying momentum of economic activity, Nayar said.

• GDP growth in Q1FY24 is now estimated at 8.2% vs. 7.8% previously forecasted for the same quarter.

• GDP growth in Q2FY24 is now estimated at 8.1% vs. 7.6% previously forecasted for the same quarter.

With the upside surprise in Q3 as well as upward revisions in H1, GDP growth for FY24 is pegged at 7.6% as per the second advance estimates, compared to 7.3% as per the first advance estimates.

GDP growth in FY23 is revised to 7%.

• Agriculture declined 0.8% in Q3, as compared with a revised 1.6% growth in Q2. For the full year, growth is pegged at 0.7%.

• Mining grew 7.5%, up from 11.1% in the previous quarter. For the full year, the sector is set to grow 8.1%.

• Manufacturing expanded 11.6%, as against 14.4% in the prior quarter. For the full year, growth is pegged at 8.5%.

• Electricity and other public utilities expanded by 9% versus 10.5%. For the full year, the sector is estimated to grow 7.5%.

• Construction grew 9.5%, compared with 13.5%. For the full year, growth is pegged at 10.7%.

• Trade, hotels, transport, and communication expanded 6.7% versus 4.5%. For the full year, the sector is set to grow 6.5%.

• The financial services sector grew 7% as against 6.2%. For the full year, the sector is set to grow 8.2%.

• The public administration segment grew 7.5%, compared with 7.7%. For the full year, the sector is set to grow 7.7%.

• Private consumption, reflected in private final consumption expenditure, grew 3.5% in Q3FY24.

• Government final consumption expenditure fell by 3.2%.

• Investments, as reflected by gross fixed capital formation, grew by 10.6%.

The better-than-expected GDP growth figure is a "pleasant shock," said Shubhada Rao, founder of QuantEco, to NDTV Profit. "We were looking at slowing drivers in the GVA, driven by slowing on the government capex plan. Consumption was struggling and the external sector was going to be lackadaisical. We were anticipating a slowdown," she said. The lower input cost benefit has been good for mining, manufacturing and construction, leading to a "serious bump" in their growth.

Rajani Sinha, chief economist at CareEdge, said that while the industry-wise breakup of GVA is on expected lines with agriculture growth showing marginal contraction given the poor monsoon. Manufacturing sector GVA has recorded healthy growth supported by lower input cost, while robustness seen in the services sector has continued.

However, in terms of the expenditure side, as expected, the growth has been mainly led by strong capex by the government, while consumption growth has remained feeble.

Going forward, the most critical aspect to watch out for will be a broad-based improvement in consumption growth, said Sinha. The other critical aspect would be a meaningful improvement in private investment. "Overall robust GDP growth will be sustainable only when there is a meaningful improvement in consumption and private investment.”